Essentials of Accounting: Top 14 Accounting Tips for a Small Businesses

This informative guide from Versa Cloud ERP has 14 relevant accounting tips that allow a business to improve its practice and eliminate common pitfalls.

Taking Care of Your Business Finances: Why It Matters

Good financial management establishes a strong base for businesses to be successful, especially for new ones that are just starting. Unfortunately, many small businesses go under, usually due to cash flows running dry.

The financial situation should be constantly monitored and given proper attention to prevent this in the future from ever occurring again to curb these problems in check.

Equipped with good knowledge of where the money is going and how much is available, the right judgment can help avoid overspending on the present while planning for the future. It is like having a GPS Guide for cash flow management.

Top 14 Accounting Tips for Small Businesses

1. Keep Your Business Money Separate

The financial resources of your business and your personal financial resources should be compared to two separate jars; that is, they ought to be segregated. Users can achieve this by opening a business bank account. After obtaining the EIN, this is one of the first things to do when starting a business. Just like an individual’s social security number applies to the individual himself/herself, an EIN, on the other hand, will serve a business in a similar capacity. But, if a sole proprietor basically runs the business, they could use their social security number in its place.

Why is this important?

Easy Tracking: When it comes to keeping an eye on your business costs, having them mingle with your personal expenses is not a good thing. This is very good for tax time because you get to see expressly what you can deduct so that you will save some money.
Protection: Having another bank account protects your personal savings if something goes wrong with the business. It’s like having a parachute.
Credit: A business bank account makes it much easier to get loans or credit cards for one’s small business, allowing much flexibility for expansion activities or emergencies.

Types of Accounts You May Need:

Checking account: The checking account can be rightly termed a sort of wallet generally used for purposes like the payment of bills or direct supplies.
Savings account: This is different as it is viewed as the piggy bank of keeping aside money for future needs or passing the uncertainty of events.
Credit Card: A credit card helps in making a business purchase and establishing a credit history for your business; this would probably help when you are rated for reliability in repayment, as is done in the report card.
Merchant account: The account into which you deposit credit and debit card payments of your customers, thus simplifying the purchase process for a consistent and mobile buyer.

3. Income and Expenses Tracking with Bookkeeping

Bookkeeping may be regarded as a diary for money transactions for an enterprise. It does entail listing all records, whether from inside or outside the enterprise. This enables you to look in the direction where your money is going and make good decisions.

Put Technology in Your Favor:

Accounting Software: These computer programs can automate many of the bookkeeping tasks, relieving users of tedious duties and cutting the time it takes to do bookkeeping. They can also ensure fewer mistakes occur while doing book-keeping tasks manually.
Cloud-based Software: Think of it as access to a diary kept live on the Internet, from wherever there is an Internet connection. It’s like having your books in the cloud!

When your business grows, you will want to look into the option of getting a more powerful accounting software called ERP. This super software will be used to have a full view of running an entire business: unrelated to any specific areas or departments that are going to be used.

4. Budget in Advance

A budget is like a map to follow for your money. It shows you the way you expect to earn (income) and to spend (expenses). Hence, you will take care not to spend more than you earn-something you poorly enter into savings for the future!
Just like if you planned a road trip you wouldn’t just get into your car and start driving, you would calculate gas costs, accommodations, and food expenses! A budget does this for your business.

4. Maintain Proper Business Records

Maintaining good records is keeping a diary of your business’s money. It is even crucial to keep a record of all income earned from selling your products or services. This is possible with receipts, invoices (bills that you send to your customers), and bank statements.

Expense costs incurred in running the business, supplies, salaries, etc.-can be facilitated through the use of receipts, credit card statements, and bank records.

Make Use of Technology:

Accounting software: This may help you organize and store records in a digital format to avoid losing paper receipts or invoices.
Receipt scanners: These are useful devices that can turn your phone into a receipt-tracking device! Take a picture of a receipt, and the software will record the information for you.

Significance of Record-keeping

Taxes: You will need these records to prepare tax returns. Good records can easily display how much you earned and how much you spent when required, so you will pay the correct amount of taxes.
Understanding Business: Keeping track of income and expenses helps you know how well your business is doing financially. It’s like having its health check!

Note: Although the IRS (the government agency that collects taxes) says you should keep your business records for at least three years, most professionals recommend saving them for seven to be safe.

5. Choose an Accounting Method

Think of accounting methods as different means of keeping score in a game of sorts. There are two significant ones:

Cash Method: This is reminiscent of the scorekeeping in a basketball game. You only assign points when the ball goes through the hoop (when cash is received). Very intuitive.
Accrual Method: This resembles scorekeeping in a soccer match. You assign a goal when the ball is still in air and has yet to cross the line (when goods and services have been rendered, regardless of whether cash has yet changed hands). It gives you a fuller look at the game.
Most firms prefer the accrual method, because it provides a clearer view of their financial health, even if it can be a bit complex.

6. Keep Your Books Current

Think of your financial records like a jigsaw puzzle you are trying to put together. There are pieces missing; you really cannot tell the full picture. Thus, it is important to keep your books current and post all pieces of the jigsaw puzzle whenever received.

Some suggestions to ease keeping control:

To automate: use accounting software automatically to log your income and expenses.
To bind to your bank: tie your banking accounts with accounting software to make sure your transactions are tracked automatically, sort of akin to having your bank statement and your financial diary gossiping with one another!

7. Manage Your Bills and Invoices Like a Pro

Pace yourself (if you can): If your suppliers grant you credit, surely capitalize upon it! This effectively means paying them later- very beneficial in retaining cash for a longer time.
Early payments (if it makes sense): In some cases, discounts are granted by suppliers for early payments. Just think of it as a bonus for being a good customer.
Get paid: Be certain your customers pay you on time by sending clear invoices and following up nicely. Offer discounts for those customers who pay in advance examples!

Use technology to help.

Accounting software: This can help you speed up the invoicing process, so you are not stuck doing manual entry and follow-up with your invoices. You can even have automatic reminders sent to customers, which means you have an assistant with you who will constantly bother your clients till they pay up!

8. Teamwork Makes the Dream Work (Even in Accounting!)

Big companies tend to have all sorts of rules regarding who can do what when it comes to money, basically to not let any mistakes or worse chances of dishonest things occur.
In a small business, only you might handle everything. But this is great and balances are still important nonetheless.

For example, you may write checks for your business but let someone else co-sign them. That little action actually means somewhat checking yourself for all small mistakes and ensuring honest dealing.

9. Control Costly Expenditures

Running a business can be really costly! Two of the most prominent expenses are:

Employee remuneration: Salaries and benefits can run into a big sum. One possible way of economizing on this front is to hire freelancers or contractors for certain works, especially in case you do not need such duties performed on a full-time basis.
The overhead of keeping the inventory: If your business involves the sale of products, there will be extra charges involved for the storage and management of such products. Keep track of your insurance, storage costs, and also for any products that may expire or get outdated over time.

Technology for Help:

Time tracking software: This will help you monitor how much time your employees spend on various tasks, which will help you better understand the labor costs.

10. Strategize on Big Purchases

Just like you’ve structured your savings to buy a car or a house, similar measures should be implemented by businesses when preparing for huge purchases, such as acquiring machinery or leasing bigger office space.

Here are just a few tips:

Spend track: You have to know every cent coming into and going out of the company if you are going to find out when a big purchase can be made.
Boost credit: Just as you have your score personally, your business will also boast a credit history. Using a business credit card in a responsible manner will help you develop a good credit history, which will, nonetheless, facilitate the pursuit of any additional financing that may be required.

11. Stay on Top of Taxes

It is easy for taxes to get somewhat involved, but they are nevertheless very important for doing business. A few key things to keep in mind:

Estimated Taxes: If any taxes are due, the IRS might require you to make quarterly payments little like paying rent in advance.
Maintain Good Tax Records: Just like your normal records for any financial purposes, it is equally important to keep records of taxes as well. This will include pay stubs and tax forms.
A Tax Calendar: A calendar published by the IRS that summarizes all essential tax deadlines. You can also sign up for an e-mail reminder to make sure that you do not forget any of them!
Professional Help: It might be a good idea to get help from the pros, as tax matters can be confusing at times. Tax pros can ensure correct filing of taxes and that you get all deductions-a legitimate way of saving money on your taxes.

12. Track Your Inventory Carefully

If the business you run sells products you need to know what is on your shelves.

Count Accurately: Ensure that you can accurately count your inventory. This could be through regular counts of everything or through the use of technology to help you track it automatically.
Inventory Software: It will become easier for you to track your inventory; it will become much more accurate as well. It is as if you already have an organized stockroom!

Why is this important?

Knowing Your Manufactural or Purchase Costs: One should be aware of their manufacturing or purchase costs before they can effectively sell what they’re offering.
Financial Health: The valuation of the inventory will prove instrumental in determining how balanced or otherwise a business is.

13. Financial statements “report cards” for your business

In a way, financial statements are quite similar to report cards. It is a measure of some aspect of your business – in this case, the finances. Broadly, it can be classified into three main types:

Income Statement: This shows how per what amount you made and how much you lost over the years.
Balance Sheet: This indicates what a business has (assets) and what it owes (liabilities) at a particular moment in time. It is like a photograph of the business’s financial position.
Cash Flow Statement: This indicates cash that came into business and cash that went out of it within a certain period.

These statements are crucial for knowing the financial results of your business operations as well as for securing loans and other investments.

14. Forecasting: financial projections

Financial projections act like a kind of crystal ball to examine future finances for the business. These allow the business to know how much money it expects to receive and expend over the following years. In other words, it serves as a guideline that would redirect the judgment as to when one should make the large purchases, know if it is wise to go for the loan or know if the organization is on track to meet the financial objectives set.
Think of it as planning a family vacation; you will want to pencil in some money for flights, hotels, and activities just to check whether it is not too much! Well, projections do the same for your business.

Why are projected financial statements so important?

Planning: They introduce your time and foresight in controlling your business.
Funding: When you may require a loan or equity investment, financial projections can demonstrate to others that your business plan is well thought out.

The Bottom Line:

The key to succeeding in business lies in keeping proper records, understanding the finances, and proper planning of the deal. It’s like having all your financial tools to build a firm and thriving company under your control!

Versa Cloud ERP for Small Businesses Accounting Needs:

Versa Cloud ERP provides a simple yet complete solution to all accounting problems. Automate financial flow from basic bookkeeping to sophisticated reporting with labor-saving options, current visibility, and strong control.

The robust accounting feature of Versa supports:

Multi Entity
Multi-Currency
Bank Integrations and Reconciliations

Versa also supports financial capabilities included in the core ERP module:

Versa Cloud ERP enables efficient management of financial activities, informed decision-making, and overall growth of the business.

A Small Business in the modern day is complex and requires resources to deliver on its goals and achieve its full potential. To create a small business success story business owners need an ERP system that grows with them.

Effectively manage your financials, inventory, and production workflows with our award-winning ERP.

Let Versa Cloud Erp’s do the heavy lifting for you.

Take a look at our recognitions

Stevie Award

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Finances Online

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Front Runners

This FrontRunners analysis is a data-driven assessment identifying products in the Enterprise Resource Planning (ERP) software market.

Best in Biz Awards 2017

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