small business accounting

small business accounting

Small Business Accounting

1. Introduction to Small Business Accounting

It is important to stress that when a business is small or starting up, it is easy to manage your accounts without the need for a professional accountant, but it is important to keep all your transactions properly recorded as your business grows. And if you become successful, a good accounting system can be put in place to manage these more intricate financial matters in detail and comply with the law, which requires 12 months of accounts to be recorded at YE every year.

Good accounting will also allow you to keep abreast of debts and any amounts owed to you by customers. I’ve seen cases where small businesses have received large orders from new customers, spent a lot of money on production and technology, and expenses only to later find out the company will not pay for the goods when delivered. Good accounting practices will alert you to when your accounts are payable and give you some valuable time for follow-up.

The reason business accounts are so important is that, in addition to being a legal requirement, without good accounting, it is impossible to know what profit you are making, if any, until after the year-end when you’ve received your accounts info back from the accountant. If you have no accounting, then you are in the dark as to how much money you are making, how much you can invest in your business, and what you can take out as personal drawings/salary.

When you are running a small business, your focus will probably be on customer acquisition and product development if you are a new venture, and product development, marketing, and sales if your business is more established. However, when you run a small business, you also take on a number of other roles such as the cleaner, the receptionist, procurement, office manager, and for the purposes of this guide, business accountant, which is essential to the smooth running of not only your business but your business accounts.

2. Benefits of Proper Accounting for Small Businesses

One useful report that can help to paint a picture of your financial situation is called the Cash Flow Statement. This document is a testament to the revenues and expenses of your business, describing the flow of real money into and out of your business over a specified time period.

Properly collecting and interpreting such activity is the number one thing you can do to ensure that you always have a true and accurate representation of your business’ current financial situation. Once you have an idea of your business’ financial state, you can begin to build reports. Having updated financials allows you to quickly create the following important financial reports that explain how your business is performing from an operational standpoint.

First and foremost, the major benefit to proper small business accounting is not only that you know where your business stands, but also that you can compile a variety of financial reports that demonstrate, in detail, the numbers behind your business. The beauty in accounting is that each transaction, regardless of how minor, is logged in some fashion. This means that as you pay your bills, requesting money from clients, and distributing pay to your employees, every single operation of your company is accounted for in detail.

One of the financial areas that may often be ignored when it comes to managing a small business is accounting. This is an unfortunate circumstance because proper accounting is critical to the success and long-term sustainability of your small business. If you own a business of any kind, it is important to take the time to establish the proper accounting principles to ensure that you’re not stunting your own growth in the long term.

Owning your own small business is an incredibly rewarding endeavor. The downside to owning a business is that it can sometimes feel like you do not have the proper resources to ensure that your business is functioning at its absolute best. However, as you may have already learned from running your business, any time you save in the short term by cutting corners when it comes to your business operations often leads to more complex problems on the road ahead.

3. Essential Accounting Practices for Small Businesses

After a sale is made, cash should be collected immediately. Often, small business owners might procrastinate in invoicing for two reasons: they do not want to risk possible customer dissatisfaction, or they are simply too busy to manage it. Delaying invoicing, however, can lead to cash flow challenges. It is crucial for a company to preserve a steady stream of cash. The more time that a small business owner puts off invoicing, the greater the risk that they will lose the opportunity to be repaid. If a small business owner takes in cash directly from clients, deposits should be made as soon as possible. Allowing money to sit in the till without depositing it in a bank account increases the chances that it will be stolen and makes it more difficult to determine the flow of cash—the lifeblood of the business. An accurate accounting system should be in place to ensure that all money collected will be deposited into bank accounts on a daily basis.

In today’s competitive marketplace, the ability of a small business to track and accurately record their financial transactions—from revenue to expenses—is critical to the continued success of the company. The action of accurately recording transactions is known as bookkeeping—a necessary task that can be done by the business owner, a bookkeeper, or an accountant. However, the majority of today’s small business owners take the initiative to complete this function themselves. There are extraordinary benefits to this practice. In time, a small business owner can provide an accurate picture of company performance, leading to more well-informed business decisions. Here are three essential accounting practices that small business owners should adopt as soon as possible:

4. Choosing the Right Accounting Software for Small Businesses

The benefits of using accounting software can’t be over-emphasized. The choice of accounting software will depend on one’s business model. There are several accounting software in the market but here is a list of the best accounting software that are suitable for small businesses. Zoho Books is used by a lot of small and medium-based businesses. It’s cloud-based and it is very easy to use. Some of the reasons why Zoho stands out are that it is very affordable. Other features include; it’s easy to use and you can also use it to do invoicing. Quickbooks offers an online version of its accounting software, you can also try it for free within the first 30 days. Also, if you don’t have a lot of financial transactions, Quickbooks offers the self-employed package and this is the cheapest available package in the market. Xero is also a cloud-based accounting software that is taking over the accounting market globally. There are several features that make it a choice for small businesses. Some of these features include but not limited to; simple transactions, creating reports and inventory management. Other Xero features include; payroll, employee leave management, financial reports, and graphs. Even though it has several features, Xero is easy to use.

One of the secrets of successful small businesses is proper accounting. This can be done via using the right accounting software as it has several benefits. One of the main reasons why small businesses fail is because of lack of proper accounting. To a lot of small business owners, they only start to see it as necessary when they want to file their tax returns. Furthermore, running an accounting system proves to be challenging as you have to properly keep long records of sales invoices, supplier and expense receipts, perform calculations and file as well as keeping the records safe. Proper accounting makes it easier to run a successful business. Also, accounting software allows you to easily generate financial statements, graphs, reports, and automate transaction processes.

5. Outsourcing Accounting Services for Small Businesses

By analyzing the needs of your company, you can then start the analysis of accounting service vendors. Confirm the company that operates from a building with security to important necessities such as network connectivity and communication networks. Confirm that your confidential financial information, such as financial password and accounting details, are securely kept. Confirm the information delivery security. Confirm that you’re more than okay with the level of security that the vendor provides. To get direction and data on accessing accounting experts to meet the special needs of your company, you can monitor the functionality of global trade information to identify the top provider of outsourcing accounting services.

If you are a small business owner and want to remain focused only on your business, you might as well pass the accounting hassles to an experienced accounting service provider. While firms continue to invest in increasing productivity and administrative functions via progressive technologies that include top-end software, it is fascinating to note that as many as 60% of organizations are not sure on the right way to lease worthwhile accounting service vendors. This enables skilled firms to enhance their industry by providing part of their productivity features to other corporations of various sizes. Trying to find the easiest accounting outsourcing services is made simple by running an online search.

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