4 Accounting Tips for Small Businesses
Accounting is a crucial part of any business, regardless of its size. Unfortunately, it can also be complex and impenetrable to begin with, even for experienced business owners. Since keeping your books and records in order is vitally important, it’s not an area you want to make any mistakes in.
The good news is that it’s not as bad as it seems. The key is knowing the basics you need to consider, at which point you should already be able to keep one step ahead. There are also several things you can do to ensure an even smoother accounting process.
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In this article, we’ll discuss some of the ways you can improve the accounting for your small business. This will including exploring the importance of keeping accurate records, ensuring you don’t lose out on payments, and why dedicated accounting software could help. Let’s get started!
1. Always Maintain Accurate Records
Above all other things, being organized is arguably the most important aspect of accounting. It might sound obvious, but it’s worth reminding yourself of this simple truth as failing to keep accurate records will cause some significant headaches down the line.
First and foremost, making sure you keep track of all your transactions helps you avoid IRS audits and will be a huge advantage when it comes to preparing financial statements. By tracking the money coming in and out of your business, you’ll be able to monitor your progress and help you make more accurate projections. It can also make it easier to spot places where you can optimize your business or cut down on unnecessary costs.
This is only scratching the surface of why accurate records are a top-priority consideration for any small business. Fortunately, actually maintaining good records doesn’t need to be too difficult. As long as you track every transaction and make sure to keep your invoices and bills in one place, you’ll be in a good position.
2. Make Sure You Get Paid on Time
This is another point that might sound almost insultingly obvious, but you might be surprised to know just how many small businesses make this mistake. For example, you may forget to follow up properly on aged receivables, or avoid doing so as you don’t want to make a fuss with a potentially important client.
However, this is obviously not viable. If you’ve done work, you need to get paid, and there is nothing shameful or unprofessional in being firm on this point. It could seriously harm your business if you let unpaid invoices pile up, as you’d be effectively working for free and have no economic security.
To avoid this issue, you should set up a system to follow up on any aged receivables. If you haven’t been paid after a certain amount of time, chase up the client in question. A good time frame is 14 days after sending the invoice, as this should be plenty of time for them to pay.
When you do contact them, be firm but professional. There’s nothing to be gained from being aggressive or accusatory – even if they start acting unprofessionally. If this causes friction, it might be worth considering if the client is worth keeping on in the long run, once they’ve actually paid you, of course.
3. Calculate a Minimum Target Profit
While keeping accurate records is very important, as we mentioned earlier, it’s almost as vital that you analyze the data they provide and put it to practical use. By looking at how much money your business is taking in and spending, you should be able to calculate a minimum target profit you need to hit every month.
Doing so has a number of benefits, both for your business at large and your accounting. Naturally, it helps you easily track how much money you need to be earning on a regular basis, to know how well your business is doing month-to-month. However, it also takes potentially confusing numbers and makes them easier to collect in a way that makes sense.
The easiest way to arrive at a minimum target profit is to consider your total outgoing costs, including those to produce the goods or services you provide, as well as your general business overheads. Then subtract this from your total earnings for the month.
Naturally, this figure will usually fluctuate, which is why having accurate records is so important. This will let you calculate an average figure that you can set as your minimum target.
4. Use Dedicated Accounting Software
Up until very recently, doing your own accounts and bookkeeping was an almost herculean task, as it required tracking physical receipts, bills, and invoices. However, thanks to the advent of accounting software this process has become considerably easier.
Accounting software basically shaves off the most difficult and time-consuming aspects of being your own bookkeeper. It also helps to store all of your invoices, bills, estimates, and receipts in one place. As such, you’re much less likely to lose track of any transactions or forget to chase up an aged receivable.
By using an application like Hiveage, you can create, manage, and track all your invoices. It also makes it simple to track your business’ finances, and lets you store everything in the same place. For example, you can create an estimate and send it to a client. Once approved, you can turn the same estimate into an invoice, which takes most of the hassle out of the process.
For many, the idea of doing your own accounts can seem impossibly daunting. However, this doesn’t have to be as difficult as it might appear. There are several key considerations and useful tips you can use to make your experience much easier in the long run.
In this article, we’ve discussed some ways you can improve your small business’ accounting, such as:
- Always maintain accurate records.
- Make sure you get paid on time.
- Calculate a minimum target profit.
- Use dedicated accounting software.
Do you have any questions about accounting for small businesses? Let us know in the comment section below!
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