Accounting or financial management is the most daunting task that an entrepreneur has to undertake. As a small business owner, it is important that you know how your business is doing financially and how much taxes you have to pay. Here are some best accounting practices that every entrepreneur should adopt to ensure that your business is doing well.
- Familiarize yourself with your financial statements like balance sheet, profit and loss and cash flow statement.
The balance sheet indicates your total assets, liabilities and capital at a particular time. The Profit and Loss or Income Statement shows the revenues generated and expenses incurred during a particular time. Cash flow statement, on the other hand, shows the details of the cash flow, whether inward or outward, as a result of your business’ investment and financing activities
- Prepare a business budget/plan.
A budget plan will help you project the amount of expenses and revenues for your business.
- Decide the accounting method you will use – Cash Basis Method or Accrual Method.
Cash basis is when you record revenue when cash is received. Expenses are recorded when bills are paid. In the accrual method, revenues and invoices do not have to be paid before recording them in your books.
- Separate business and personal expenses.
Avoid the habit of listing all personal expenses as business expenses. You will not be able to see how your business is performing and you will not be able to attract investors to your business.
- Automate payments and invoicing.
Take advantage of technology and enroll recurring bills on e-payments and regular customers in e-invoicing. This will ensure that you pay your bills on time and that all revenues are accounted for.
- Identify and strictly implement internal controls
These internal controls, like processes that protect revenues from wastage, errors and fraud and meeting financial obligations, will help you meet your financial goals.
- Plan your purchases.
Buy only the things that you need and make sure that your business will benefit from them
- Make it a habit to close your books at the end of every month.
This will enable you to see how your business is doing and decide on what else needs to be done to control expenses and increase revenues.
- Reconcile your bank account regularly.
Make sure that the money in your bank account matches the revenues listed in your books. That is one way of checking and balancing your books.
- Pay your bills on time.
This will help you build a good credit standing and relationship with your suppliers. In fact, you might be able to get more favorable payment terms when you decide to expand your business. You will also avoid paying past due charges.
- Submit and pay your taxes at least two weeks before the due date.
This is an obligation that you cannot escape so pay early to avoid penalties.
- Plan your hiring
If you plan to hire any personnel, make sure that you list down their job descriptions, responsibilities, accountabilities, working hours, reporting relationships, compensation and benefits so that you can assess if you can already afford to hire.
- Monitor your receivables.
While it is good that you were able to sign up another client, it cannot be considered as revenue if money has not been exchanged. Make sure that you monitor your receivables closely because this will improve your cash flow.
- Hire a reputable accounting firm.
Whether you do your own book keeping or you have someone do it for you, it pays that you hire a reputable accounting firm to complete the taxes and audit.
Many challenges will be encountered when you run your own business but if you follow the accounting practices stated above, running your business will be a lot easier.
About the Author:
Anne Ruth Dela Cruz is a seasoned writer who has interests in health, wellness and business start ups. She has also dabbled in corporate communications and public relations. A mother of four, Anne also loves videoke sessions and reading a good book.