Small businesses, like medium- and large-scale organizations, need to simplify accounting strategies to attain growth. Failing to set procedures for keeping your finances in check can strain your revenue unnecessarily and halt growth.
Small businesses are usually low on staff and might 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 path to downfall. If you’re planning to start a small business or already running one yet clueless about finances, follow the eight tips below to make financial management for your business easier.
1. Track business expenses
Maintaining a consistent record of business expenses is the most basic way of simplifying your business accounting. However, consistency is what most small business owners struggle with. Manually recording expenses through paper receipts is time-consuming and slows down productivity.
Consider automation of tracking expenses; instead of hoarding paper receipts from every order and client, scan and log them into a database. Once you start scanning and archiving each receipt, you won’t risk losing them. It’s one thing to lose paper receipts and another to lag behind your financial management.
You can invest in cloud-driven accounting software or a platform that enables you to record every receipt safely. Take any ASC 842 guide; the first thing you’ll need to provide is a track record of your asset-related expenses. Like ASC 842, you need a consistent accounting record for other accounting and legal practices.
2. Keep personal expenses separate from business
As a small business owner, mixing up your personal and business expenses is tempting. If your business needs a new asset like a printer or computer, consider paying for it through your business account. Of course, you can pay back your business for a personal expense you paid for using the business account.
But, overdoing this may disrupt your business’s financial management. To begin, 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 finance personal expenses.
It also becomes easier to track business expenses if you have a separate account. While automation techniques help crossover business and personal expenses, we recommend keeping the two separate from the start.
3. Adopt an invoicing system
Create systems that support your business workflow. The more organized your payment and expense tracking is, the more mentally at peace you will be. Reminding every client of prompt payment is time-consuming and may hurt goodwill.
Instead of calling or mailing clients individually, invest in an invoicing system that automatically sends every client a reminder at the start of your billing cycle. For instance, you can offer a promotional discount on prompt payment to deal with late-paying clients. Or, if you have a team of people collaborating on the same documents, you can use tools that help you in comparing words and files to keep everyone on the same page.
Regardless of your strategy, getting paid on time is crucial for business success and growth as it keeps your finances in check. If, after countless efforts, you’re struggling with making your clients pay on time, it may be better to update or revoke 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. However, just like reminding your clients to pay on time, make a habit of paying your employees timely.
You can use payroll software integrated with your business bank account that automatically deducts monthly salaries for your employees. Or, you can sign up for a payroll company to handle it for you.
5. Tax management
Simplify your business accounting by filing business taxes on time. Become tax-ready by maintaining a consistent record of your expenses before the deadline. With a consistent record of business expenses, you can easily file taxes on time to avoid penalties.
You should deal with tax management from the start when registering your business. You can also consult a tax accountant to help you with the tax-filing process or entirely outsource tax management. Let a professional handle it so that you can avoid penalties and fines, which increase business expenses.
6. Cash flow management
As a business owner, you must seek ways to improve your cash flow. Cash flow is necessary for every business, whether you’re an independent contractor providing services or a small product-based business. To optimize your cash flow, maintain a cash flow statement that records your company’s inflow and outflow of funds.
In addition, tasks like paying employees on time and receiving payments are necessary to keep your cash flowing. This is also why we recommend adopting a recurring billing solution for collecting payments on time.
7. Consider business loans
As a small business owner, you may have to take out a loan at some point to finance an asset’s purchase or debt repayment. A business loan can help you finance expenses instead of running down your savings. Not only that, but business loans are also helpful in maintaining a consistent cash flow and providing growth opportunities.
However, to qualify for a business loan, you must maintain a financial record of your revenue and expenses, along with a good credit score. Every lending institution may have different requirements, but to qualify for a loan:
- You need a properly structured business plan
- Financial records that account for your credibility in repaying the loan
- Collateral in case you fail to 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 where needed. Consult an accountant to avoid penalties and errors when filing taxes or complying with accounting standards.
Simply executing a business idea isn’t enough for success and growth. Business owners must constantly look for ways to improve their financial standing and business prospects and simplify accounting.