As a small business owner, there are several business issues that need your constant attention. While your primary objective is to ensure the growth of your business, back-office activities are essential too, such as keeping track of your sales, costs, and profits. Small businesses often suffer because they overlook the necessary aspects of accounts and bookkeeping. Sometimes small business owners try to maintain the accounting books and taxes themselves.
While they feel that it will serve the purpose initially, the numbers start to add up, and they end up feeling lost. Any errors in bookkeeping and tax calculations can prove costly for the company if the IRS chooses to audit the business accounts. Therefore, there are some time-tested accounting tips that you must follow to stay ahead of the curve.
Automate your accounts
Even though in the earlier days, businesses had to write the books for their accounts, such as journals and ledgers, and calculate the trial balance manually. However, in the modern age, even small businesses can take advantage of automated accounting software that can help them keep track of their finances.
Accounting software can reduce human errors in recording and calculating the financial data of a company. You can also gain considerable insights into your business with the help of financial reports generated by the software, such as revenue forecasts, stock maintenance, unprofitable areas, and others.
There are several accounting software available in the market to fit the requirements of small businesses. We suggest reading Neil Patel’s accounting software guide to evaluate your options. These are some types of accounting software that are available for business owners.
- Payroll and accounting software spreadsheets are available for small businesses that can take care of the basic financial requirements of a company.
- Business management software is a little more expensive than spreadsheets. The software can get installed on a computer and take care of most accounting requirements of a company, such as business calculations, inventory maintenance, invoicing, billing, point of sale, so on and so forth.
- Cloud-based software offers all the tools and functions provided by business management software and more. The biggest advantage is that you can access your business activities from anywhere. You can also add income and expenses to your business account while on the road.
Keep business and personal accounts separate
One of the basic mistakes that small business owners make is to mix up their personal accounts with their business accounts. Many small business owners do not bother to open a merchant account with a financial institution. Therefore, they end up using their personal savings account for their business, which often ends up mixing the two finances.
Open a separate merchant account for your business so that you can manage the two separately. If you have contributed to the capital of the business, keep proper documentation to support that. Keeping separate bank accounts will also limit the risk of exposing your personal savings in case of bankruptcy.
As a general rule, business owners cannot deduct personal expenses from their business tax returns. However, if you use your home premises or your personal car for business purposes, you can deduct a sum from your company account as remuneration for the use of your property.
Keep track of every expense
Keeping track of expenses is a tedious task for small business owners. They often have wallets and glove compartments full of paper receipts for business expenses, which are easy to lose or miss out on. To avoid this situation, keep a business credit card so that you can keep track of all your business expenses.
You can also use cloud-based accounting software to record and keep track of your business expenses from anywhere. You only need to take a picture of the receipt and upload it to your business account from your phone.
Hire a professional accountant
Professional accountants can work wonders for a small business, especially if it is a new startup. You may not be aware of all the aspects of accounts management and tax calculations, such as risks, loopholes, and additional deductions. A professional accountant can not only take care of managing the business incomes and expenditures, but he or she can also help you with the strategic financial planning of your business.
Create financial projections
Financial projections are an essential aspect that ensures your business is running and thriving in the future years. They can help you to see the path of your business in the foreseeable future and the areas which may need your attention. You will understand your future investments and where you may need to withdraw your financial support.
Financial forecasting can be a complicated task because you must take several uncertain factors into account, such as inflation, market conditions, market trends, so on and so forth. You can utilize the reports from the accounting software or consult a professional accountant to formulate the financial forecasts.
Well maintained accounts are the backbone of any business, so you must take adequate steps to ensure that your company finances get managed efficiently. You can use the tips mentioned above to maintain the financial health of your company and ensure its growth in the future.
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