Small businesses, like medium and large organizations, need to simplify their accounting strategies to achieve growth. Failing to establish procedures to control your finances can put unnecessary strain on your revenue and stunt growth.
Small businesses are typically short on staff and may not have the budget to invest in expensive accounting services. Typically, small business owners handle everything from providing services or manufacturing products to shipping. However, business accounting is different and more complex than other business tasks.
Poor budgeting and lack of financial management can put you on the road to doom. If you’re planning to start a small business or already have one, but don’t know anything about finance, follow these eight tips to simplify financial management for your business.
1. Track business expenses
A consistent record of business expenses is the easiest way to simplify your business accounting. However, consistency is what most small business owners struggle with. Manually capturing expenses through paper receipts is time consuming and slows down productivity.
Consider automating expense tracking; Instead of hoarding paper receipts from every order and customer, scan them and log them into a database. Once you start scanning and archiving each receipt, you don’t risk losing it. It’s one thing to lose paper receipts and another to fall behind on your financial management.
You can invest in cloud-based accounting software or a platform that allows you to securely capture each receipt. Take any ASC 842 guide; The first thing you need to provide is a track record of your property-related expenses. As with ASC 842, other accounting and legal practices require you to have a consistent accounting record.
2. Keep private expenses separate from business ones
As a small business owner, it’s tempting to confuse your personal and business expenses. If your business needs a new asset like a printer or computer, consider paying through your business account. Of course, you can reimburse your company for a personal expense that you paid for through the business account.
However, overdoing it can disrupt the financial management of your business. First, separate your business and personal bank accounts. It’s even better if you could sign up for a business credit card. Opening a personal savings account is another way to set aside money to fund personal expenses.
It also becomes easier to track business expenses when you have a separate account. While automation techniques help bridge business and personal expenses, we recommend keeping the two separate from the start.
3. Introduce an accounting system
Build systems that support your business operations. The more organized your payment and expense tracking is, the calmer you will be. Reminding every customer to pay immediately is time-consuming and can hurt goodwill.
Instead of calling or emailing customers individually, invest in a billing system that automatically sends a reminder to each customer at the start of their billing cycle. For example, you can offer a promotional discount on prompt payment to deal with defaulting customers. Regardless of your strategy, getting paid on time is critical to business success and growth as it keeps your finances on track.
If, after countless efforts, you’re struggling to get your customers to pay on time, you might be better off upgrading or revoking your contract.
4. Pay on time
Payroll is something that not every small business may have to deal with. Since most small business owners are “solopreneurs” and don’t have full-time employees on their team, this tip may not apply to everyone. Just as you remind your customers to pay on time, however, make it a habit to pay your employees on time.
You can use payroll software integrated with your business bank account that automatically deducts monthly salaries for your employees. Or you can sign up with a payroll company that will do this for you.
5. Tax Administration
Simplify your corporate accounting by submitting trade taxes on time. Get tax ready by keeping a consistent record of your spending before the deadline. With a consistent record of business expenses, you can easily file taxes in a timely manner to avoid penalties.
You should already deal with tax management when registering your business. You can also contact a tax advisor to help you with your tax return, or outsource the tax administration entirely. Get this done by a professional so you can avoid penalties and fines that add to the cost of doing business.
6. Cash flow management
As a business owner, you need to look for ways to improve your cash flow. Cash flow is necessary for any business, whether you are an independent contractor providing services or a small product-based business. To optimize your cash flow, keep a cash flow statement that tracks your company’s cash inflows and outflows.
Additionally, tasks like paying employees on time and receiving payments are required to keep your cash flowing. For this reason, we also recommend implementing a recurring billing solution to collect payments on time.
7. Consider business loans
As a small business owner, at some point you may need to borrow money to finance the purchase of an asset or to pay off a debt. A business loan can help you fund expenses instead of using up your savings. In addition, business loans are also helpful in maintaining steady cash flow and providing growth opportunities.
However, to qualify for a business loan, you must document your income and expenses along with a good credit history. Each lending institution may have different requirements, but to qualify for a loan:
- You need a properly structured business plan
- Financial records showing your credibility in repaying the loan
- Collateral in case you do not repay the loan
- Copies of licenses and other business contracts
Regardless of your financial acumen and experience, you can simplify your business accounting by educating yourself and asking for help when needed. Consult with an accountant to avoid penalties and errors in filing taxes or complying with accounting standards.
The mere implementation of a business idea is not enough for success and growth. Business owners must constantly look for ways to improve their financial health and business prospects, and to simplify bookkeeping.