When you're a small business owner, it can be challenging to keep track of your company's finances. You need to focus on your customers and clients first. But without taking the time to check your books regularly, it can be easy to lose sight of your business health.
Any small business owner needs to stay focused on their goals. Don't worry about what other small businesses are doing. Just focus on what is best for you and how you can use accounting software and other tools to meet them. Below are some ways to better manage your business accounting:
1. Leverage Accounting Software
Many small business owners still handle their books, especially when they're just starting. That makes sense, but as a business grows, time and resources become more constrained, and it becomes harder to do everything yourself.
A practical solution is to leverage the best accounting software for small business. Such a tool automates many of the tasks you can't do manually. For example, automated programs can automatically create invoices for your clients. That way, you don't have to remember or set reminders for each one individually.
On top of this, cloud-based solutions allow you to access your financial data anywhere. You no longer need a physical space with a desktop computer and paper files; instead, you can access all that information on your phone or laptop.
As a bonus, accounting software will save money in the long run by helping you manage cash flow more effectively and avoid late fees from unpaid bills. It also helps scale your business: the program will grow as your company expands its operations.
2. Create A Budget
Budgeting is one of the essential tools you have to manage your business's finances. A budget is a plan of action that uses your actual income and expenses over a certain period to anticipate how much money you will have or expect. By using a budget, you can keep track of where all your money is going and determine if there are any changes you can make to increase financial success.
To create a budget, use a spreadsheet program like Microsoft Excel or Google Sheets to calculate your total income and expenses over the last three years. Then use this information to forecast your expected income and expense amounts in the next few months.
3. Check Your Credit Score
Knowing your credit score tells you two things: how likely you are to get a loan or line of credit and how much interest on any loans or lines of credit you do get.
If your business has a low credit score, it may be challenging to get the financing you need to hire workers, rent an office space, or purchase necessary materials and supplies.
4. Modernize Your Data Entry
Small business owners often struggle to keep up with the blistering pace of technological advances. The result is that they're stuck in a rut of traditional data entry, which can be inefficient and time-consuming.
If you want to ease the strain on your bookkeeping process, consider modernizing your data entry methods by utilizing mobile apps, cloud-based software, credit card readers, barcode scanners, and receipt scanners. These tools will allow you to efficiently automate more of the process and focus on other parts of running your small business. Besides, they help keep your business data safe and secure.
5. Understand Your Basic Financial Statements
Before handling the financial affairs of your startup, it's essential to understand the basics of accounting. An understanding of standard financial statements can help you make better business decisions. You'll see what areas your company is excelling in and need improvement. This can help you prepare for things like tax time and investment meetings.
The three primary financial statements are:
- The balance sheet, which shows a snapshot of your company's finances at one point in time;
- The income statement, which shows how much money your company made over some time; and
- The cash flow statement shows how much money came into or went out of your company.
It’s helpful to keep records for these three statements by quarter and month. You should also be familiar with other accounting terms that could affect your business, including:
- Accrual accounting allows you to recognize revenue before it's been paid for;
- Cash accounting allows you to record payments as they're received; managerial accounting helps you determine profitability;
- Financial accounting helps investors understand the health of your business;
- Gross income is total sales minus cost of goods sold (COGS);
- Net income is all revenue minus all expenses (including COGS);
- Revenues are sales that are yet to be recognized as profit;
- Profits are revenues that have been earned but not necessarily collected (yet).
6. Implement An Expense Management System
As your business grows, so will the number of expenses you'll need to track. To keep yourself organized, implement a system to track those expenditures. Tracking expenses in a spreadsheet or cloud-based software can help you stay organized and make tax season less stressful.
Cloud-based services offer an incredible range of benefits that include automatic backups and secure data storage. These features show that your information is safe even if something happens to your computer.
They also offer real-time collaboration. For example, if your accountant works on your taxes simultaneously as you're adding expenses into the system, they can see those updates in real-time. Plus, many systems come with robust customer support so that using them is easy as pie—and who doesn't like pie?
7. Hire An Accountant
Even if you’re opening a small business, hiring an accountant is probably the most crucial step you can take.
Accountants can help with your bookkeeping and taxes, but they also provide precious advice on other aspects of your business. A good accountant will tell you when things aren’t looking good financially, whether it’s time to stop doing something or start doing something else.
Accountants will also help you understand your financial data better to use it more effectively for improved decisions. If you don’t know anything about accounting, it’s like speaking another language.
Most people try to get by without understanding what their financial statements mean or how they should be using them in making decisions about their businesses. This can lead to costly mistakes which an accountant could easily prevent.
Accounting is a crucial part of running a business. You need to manage your accounting and ensure you're keeping good records, tracking cash flow, and having an eye on the future.
Take the time to choose the right accounting software, use it, and keep on top of your accounts. You'll save yourself time, money, and stress in the long run.