It’s one thing to start a business; it’s another to set proper accounting. Accounting is vital for small and medium-sized enterprises (SMEs). It entails the process of recording and monitoring all your business transactions. It also involves the process of evaluating and reporting your business finances. Not only does it help regulate the financial health of your business, but it can also lead to your overall business success.
So if you’re looking to improve your small business accounting, here are six practical steps to take:
1. Record all transactions
When it comes to accounting, the rule of thumb is to record all your business transactions. However, you must do this as accurately as possible.
Whatever money enters or leaves your small business is counted as a transaction. These business transactions can be sales, expenses, fees, or even refunds. Below are types of transactions you must record for your small business:
- Assets: These include your business capital, tools, equipment, vehicles, and the commercial property itself.
- Liabilities: These include any outstanding balances on your business loans.
- Expenses: These pertain to any outgoing transactions you must pay to keep your business up and running. A few examples are your utility bills, property rental, and the costs of material supply.
- Revenues: These pertain to the money your business earns from sales. Your business gets paid for selling products or delivering services.
2. Monitor your cash flow
In line with the aforementioned, you must consistently track your cash flow. You don’t just record all your business transactions. You also monitor the money that comes in and out of your small business. Doing so gives you a clear picture of how your business fares thus far.
As a business owner, your ultimate goal is to ensure that your business earns more than it spends. That’s why as soon as you notice that your expenses are bigger than your revenues, you must make some necessary financial adjustments. That’s when you cost-cut on business expenditures such as material acquisition, marketing, or even employee headcount.
3. Track your inventory
Inventory simply refers to the stocks (goods or materials) of your business used for production and sales. When it comes to this, inventory management is important for your small business.
With this in place, expect your business to have more efficient business operations. Not only does it help you save time in your business processes, but it also helps you reduce your overall costs. Ultimately, inventory management helps you plan your stocks, analyze financial data, and make sound business decisions.
4. Set up a payroll system
As a small business, you may have some employees working for you. If you’re running a coffee shop, you probably have a handful of baristas, waiters, cleaners, and security personnel. Ensuring they are paid correctly and on time makes a difference in making them loyal employees. That is when setting up a payroll system comes into the picture.
That said, it’s best to hire professional payroll services for your small business. Such services include tracking working hours, calculating wages, withholding taxes, and so much more. Also, take advantage of an accounting app that can automatically do the payroll job for you.
5. Regulate your taxes
Tax is and will always be an integral part of our society. If you own and run a business, you have tax obligations to keep up regularly. First, be keen and careful with your tax preparations the whole year-round. Second, know how to file taxes come the tax season.
If it helps, get a tax preparer who can fill out the necessary tax forms and file them on your behalf. Also, consider hiring a tax planner who can optimize your taxes and help reduce your tax payments.
With informed decisions, you’ll be able to keep up with your tax responsibilities. This helps you avoid legal ramifications and ultimately, save up on your business taxes.
6. Use accounting tools or software
When it comes to accounting for your business, resources are readily available in the market. Gone are the days when you’d have to use Microsoft Excel to manually record and calculate your financial transactions.
Today, you can take advantage of accounting app or software. These accounting tools help you record financial transactions, calculate financial data, create invoices, and generate financial reports. They also help you analyze financial data and information that will help you make sound business decisions.
A few examples of well-known accounting software are Xero, QuickBooks, FreshBooks, and NetSuite. You might want to take advantage of one of these.
Accounting is a part of the overall equation in running a small business. However, it doesn’t have to be tedious and daunting. As outlined, all it takes is to follow the key steps above—from recording all transactions to setting up a payroll system down to hiring an accountant. Ultimately, proper accounting can lead to your overall business success.