ACCOUNTING TIPS AND STRATEGIES FOR SMALL BUSINESS.

Accounting tips and strategies for small businesses:

Introduction

Proper accounting practices are vital for understanding the financial position and performance of your small business. Implementing an effective accounting system provides visibility into revenue, expenses, profitability, taxes, and cash flow.

This guide will walk through accounting basics for small business owners, best practices for bookkeeping, choosing accounting software, and tips for analyzing financial reports.

Accounting Basics

Some fundamentals to understand about accounting for your small business:

  • Cash basis recognizes income and expenses when cash is exchanged. Accrual basis recognizes when transactions occur.
  • Key reports include income statement, balance sheet, statement of cash flows.
  • Income statements show revenue minus expenses for a period.
  • Balance sheets show assets, liabilities and equity at a single point in time.
  • Double-entry accounting means recording every transaction across debit and credit accounts.
  • Common accounts include cash, accounts receivable, inventory, accounts payable, sales, COGS, payroll etc.

Having foundational knowledge helps make sense of reports and bookkeeping.

Bookkeeping Best Practices

Maintaining accurate, timely bookkeeping provides the backbone of your accounting.

  • Keep detailed records of all income sources and expenses. Never co-mingle personal and business funds.
  • Obtain receipts and proof documentation for all transactions.
  • Enter transactions frequently – don’t let records pile up.
  • Perform bank reconciliations monthly to catch discrepancies.
  • Set up accounts for payroll, income taxes, sales taxes and other liabilities for accurate reporting.
  • Make note of depreciation on fixed assets like equipment each year.
  • Determine cost of goods sold based on beginning inventory plus purchases minus ending inventory.

Consistent bookkeeping discipline eliminates headaches at reporting time.

Choosing Accounting Software

Accounting software automates number crunching and standardized reports. Cloud-based options like QuickBooks Online and Xero provide anytime access.

Considerations when evaluating programs:

  • Available reports like profit/loss, balance sheet, and cash flow
  • Ability to create standard and custom reports
  • Dashboard view of key financial metrics
  • Invoicing, billing and collections management
  • Multi-user access with permission controls
  • Expenses and sales tax automation
  • Inventory tracking capabilities
  • Integration with other business software

Leverage technology to streamline accounting processes.

Analyzing Financial Statements

Financial reports provide the quantitative view of company performance. Analyze reports regularly to uncover insights.

  • Review income statements monthly and consider seasonality, promotions, and new offerings driving revenue.
  • Check gross margin trends and the impact of pricing, inventory costs, and efficiencies.
  • Compare each expense category to budgets. Investigate any significant variances.
  • Identify slow payers based on rising accounts receivable balances.
  • Look at operating cash flow and cash balance remaining.
  • Consider need for loans or financing based on cash levels.
  • Assess customer concentrations and impact of losing key customers.

Financial analysis turns data into actionable business intelligence.

Key Accounting Controls

Implement processes to safeguard assets and ensure accurate reporting:

  • Perform monthly reconciliations of bank statements against books.
  • Conduct inventory counts periodically to confirm existence of assets.
  • Require manager approval for transactions over a set amount.
  • Issue sequential numbered invoices and purchase orders to account for all activity.
  • Maintain fixed asset registers documenting cost, depreciation, asset details.
  • Back up accounting data at regular intervals.
  • Control physical and system access to accounting tools and data.

Controls reduce the potential for errors and fraud.

Working With Accountants

Most small business owners engage external accountants for assistance. Look for accountants with small business expertise who can advise on:

  • Choosing optimal accounting methods and tools for your needs
  • Performing compiled or reviewed year-end financial statements
  • Filing annual business tax returns fully compliant and on time
  • Providing guidance on sales tax collection and remittance
  • Sharing industry benchmarking to assess performance
  • Suggesting tax savings strategies

A trusted accountant provides an objective outside perspective on financial matters.

Conclusion

Implementing solid accounting practices is a must for monitoring the financial health of your small business and making informed decisions. Manage bookkeeping consistently, leverage accounting software, analyze reports regularly, implement internal controls, and work with professionals. With financial visibility, you gain peace of mind and a competitive edge.

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