12 Small Business Accounting Tips To Grow Your Business
Your business’s accounting department is the driving force behind all decisions. Any choices you make regarding inventory, payroll, risk, or reporting come back to your books.
Naturally, it’s a business area ripe for optimization, and even smaller companies can boost their back-office efficiency with the right tweaks to their accounting and bookkeeping operations.
1. Develop a detailed budget
Naturally, you need detailed records of all business expenses and what kind of funding you’re working with. You might be surprised at how many small business owners bootstrap this process without getting everything down on paper. Get your budget on paper and start combing through the details, looking for cost saving opportunities in your record keeping, payroll, or sales operations.
2. Choose the right accounting method
Small businesses need to choose between cash and accrual accounting as they start out. Cash accounting is easier, but it’s difficult to sustain at a certain point in company growth. Make sure you understand the advantages of each option and how you can transition from one to the other effectively.
3. Separate business and personal expenses
Most accounting for small businesses involves dipping into personal accounts to cover business costs, but be careful about making this a habit. It’s a good practice to keep personal and business expenses separate in the interest of proper tax filing and legal liability. And if this isn’t possible, at the very least, document all personal contributions thoroughly so you’ll have accurate records for your business tax return.
4. Watch accounts receivables like a hawk
Your accounts receivables (AR) tell you plenty about customer performance, behavior, and long-term payment trends. Run an accounts receivable aging report regularly and pay attention to any discrepancies in how your customers make payments.
5. Follow up on invoices
Armed with your AR aging report, you’ll be able to see which customers are best at making payments on time, and which are chronically late. Look at your underperforming customers and reach out to them to confirm invoices. Just because you issued a bill doesn’t mean you’ll get paid—and your financial data can tell you which customers need more hands-on attention.
6. Master your accounting software
Few small businesses manage their books by hand. Accounting software is the name of the game these days, streamlining data entry, reporting, and analysis. But not just any software will do the trick. You’ll need to know the ins and outs of the platform, including how to tie it to your accounts, how to set up automated alerts for reporting, categorizing financial data, and more. This is one of the single best improvements you’ll make to your accounting workflows.
7. Set up a schedule for bank reconciliations
Bank reconciliations show you how closely matched your bank statements are with your own accounting records. This is an important part of understanding your company’s cash flow and how much liquid capital is available to you at any given point. It’s recommended that you run this report at least monthly, though different companies will need to set up their own reporting schedules.
8. Set clear financial goals
Financial management is like any other aspect of your company—you need goals to keep yourself on track. Work out metrics that offer insight into performance, such as cash flow, labor efficiency, or minimum monthly profits. Establish these benchmarks early and keep detailed records on how well they’re met.
9. Be ready for tax season
If your company is just starting out, you’re likely still getting used to preparing your business books for each tax season. Naturally, you’ll want to tread lightly, here. Tax liabilities and expectations are quite different for businesses than individuals, and depending on how your company is structured (LLC, sole proprietorship, general partnership, etc.) your tax needs will change.
10. Watch for changing regulations
Is your firm prepared to handle changing regulations set forth by the Financial Accounting and Standards Board (FASB) and SEC? Accounting practices evolve over the years (revenue recognition saw a big change just a year ago) and if you want your company to stay compliant with the FASB’s guidelines for Generally Accepted Accounting Principles (GAAP), you’ll need to keep pace. This is an ongoing goal for most small businesses, but it’s crucial to the long-term success of your company.
11. Consider your customer credit policy
It’s common practice for businesses to extend lines of credit to trusted customers (particularly when personal relationships are involved), but be careful about being too generous, here. Customer credit can quickly spiral into bad debt. If you’re giving your customers this flexibility, take a look at your credit screening process and make sure you’re trusting the right people.
12. Consider outsourcing certain tasks
The above tips can help business owners manage their books—but why manage everything on your own? Outsourced bookkeeping services are becoming viable for small businesses of all sizes. If you’ve identified bookkeeping inefficiencies that you can’t manage (such as knowing how to analyze financial reports), you can outsource these tasks to experts who can walk you through the details.
Small Business Accounting Tips
This is just an overview of the different ways that small business owners can optimize their accounting and bookkeeping processes, and it’s by no means the limit. With the right financial experts in your corner, you’ll find that even your working bookkeeping processes can be upgraded in some interesting new ways.
Get more tips to grow your business by downloading our free guide.