Accounting, aptly called “the business language,” is crucial for the survival and success of small businesses. The absence of a robust understanding of its fundamentals and meticulous record-keeping of financial transactions can expose businesses to risks such as IRS audits, monetary penalties, cash flow issues, and even failure. Conversely, possessing a solid grasp of accounting principles and implementing effective practices enhances the quality of financial data, thus paving the way for informed business decisions. Small businesses, however, often find it challenging to keep pace, particularly when the accounting role, like many other tasks, rests upon the shoulders of the small business owner. Yet, with these 18 potent tips, the daunting task of small business accounting can be transformed into a more manageable, time-efficient process, offering more valuable insights.
18 Streamlined Accounting Tactics for Simplified Business Operations Accounting, while crucial, can be quite complex. However, there are techniques that small businesses can employ to alleviate this burden. The 18 financial tactics outlined here, organized under three primary segments—Organization, Planning, and Automation—can expedite record-keeping and enhance accounting hygiene, ultimately making the task of managing books more efficient for resource-limited small businesses.
Segment 1: Organize
Effective organization is vital for all business functions, particularly accounting. Disorganized records can result in inaccuracies that distort the actual financial health of a business. Here are strategies to bolster organization:
- Establish separate bank accounts: Initiate dedicated business bank and credit card accounts to exclusively monitor business activities. This segregation, a legal mandate for corporations, LLCs, and some partnerships, can simplify life for sole proprietors as well.
- Classify expenses: Structure expenses according to categories that align with your business needs. Most expenses fall under general business categories found on standard charts of accounts, like travel, entertainment, office supplies, and utilities. Customizing these charts simplifies the process of assigning the correct ledger code to individual transactions—an essential step for precise reporting.
- Maintain comprehensive records: Rigorous record-keeping is paramount. Documenting every transaction as it occurs creates a thorough audit trail and eliminates reliance on memory. For instance, noting details from conversations with customers, bankers, and suppliers, and including memo entries on invoices and checks are recommended.
- Preserve receipts: Maintain clear supporting documents, like receipts, for expenses. Digitizing receipts is a helpful tactic to make the documentation process more organized and less cumbersome.
- Structure Profit & Loss (P&L) statements: A well-organized P&L or income statement provides a snapshot of revenue, expenses, and earnings and supports informed decision-making. Comparing P&L statements from different fiscal periods can reveal potential discrepancies, omissions, and trends.
Segment 2: Plan
Accounting, despite advanced software, is not a “set-and-forget” task. Key areas to consider for effective planning include:
- Weekly account reconciliation: Regular comparisons of general ledger account balances with external sources ensure accurate and updated books, without overwhelming effort. Weekly reconciliation of cash/bank and accounts receivable aids cash flow management and fraud detection.
- Prompt tax payment: Timely tax payments mitigate the risk of costly fines and penalties. Paying estimated taxes in advance reduces potential late fees and prevents unexpected costs.
- Establish accounting objectives: Set targets for daily accounting tasks to ensure completion within a suitable timeframe. Longer-term goals for the accounting function and its deliverables should also be established, with key milestones identified to meet upcoming deadlines, such as tax or payroll filings.
- Track deadlines: Accounting thrives on punctuality. Missing deadlines can incur penalties and operational complexities. Therefore, outline and organize short, mid, and long-term deadlines for tasks like payroll processing, monthly financial close, quarterly loan compliance, and income taxes.
- Oversee cash flow: Effective cash flow management can be a savior for small businesses, as cash flow issues are a major cause of business failure. Automated invoicing and receivable management, judicious management of payable accounts, and timing of disbursements can help maintain a healthy cash flow balance.
- Control receivables: Regular review of open accounts receivable enables quick identification of overdue accounts, thereby improving collection success. Timely application of customer payments maintains good customer records and relationships.
- Engage a virtual assistant: Outsourcing day-to-day accounting tasks to a virtual assistant, a cost-effective alternative to a full-time bookkeeper, allows small business owners to focus on tasks that demand their expertise.
- Forecast future trends: Using generated financial information to set budgets, performance goals, and financial and operational forecasts prepares the business for future challenges.
Segment 3: Automate
Automation liberates small business owners from manual tasks, enhances productivity, and reduces human errors. Here are methods to introduce automation into your accounting process:
- Link bank accounts and credit cards: Connecting business bank and credit card accounts to your general ledger accelerates the reconciliation process, enhances cash position tracking, and minimizes data-entry errors.
- Minimize cash transactions: Cash transactions increase accounting burden and require additional accounting controls. Instead, opt for automated digital payment methods when possible.
- Adopt accounting software: Choose software with the right features for your business. Opt for solutions that can add capabilities as your business expands and ensures sufficient training and customer support.
- Embrace the cloud: Cloud-based accounting software offers many benefits, especially for small businesses without the budget for on-premises IT infrastructure. Cloud providers handle software installation, maintenance, and upgrades, and offer 24/7 accessibility via a web browser or mobile app.
- Automate invoicing: Automated invoice creation and sending simplifies the historically time-consuming billing process. Opt for accounting software with integrated billing and customizable invoice templates for more efficient and error-free invoicing. Additionally, digital invoices reach customers faster than traditional mail, potentially leading to faster payments.
Elevating Small Business Accounting: Tactical Approaches
|Keep separate bank accounts||Complete reconciliation weekly||Link bank accounts and credit cards to general ledger|
|Categorize expenses||Pay business taxes||Invest in accounting software|
|Keep meticulous records||Set measurable accounting goals||Avoid cash transactions|
|Save receipts||Track deadlines||Join the cloud|
|Keep profit & loss (P&L) statements organized||Manage cash flow||Automate invoicing|
|Use a virtual assistant|
|Forecast the future|
Small business accounting hacks fall into three primary categories: organize, plan and automate.
The aforementioned 18 accounting strategies can empower small businesses by enhancing their productivity and efficacy, enabling them to harness the potential rewards of proficient accounting instead of getting ensnared by potential pitfalls. By embracing automation, fine-tuning organization, and implementing thorough planning, businesses can support their overarching goals and propel their financial management to the next level.
Navigating Small Business Accounting: Frequently Asked Questions
What are the different types of accounting?
There are four primary types of accounting: corporate, government, public, and forensic. Corporate accounting involves the creation and maintenance of financial records, statements, and external documents for businesses. Government accounting pertains to federal, state, and municipal entities and operates under unique regulations and practices. Public accounting consists of an industry of specialists who assist clients in producing precise accounting information like financial statements and external regulatory filings. Forensic accounting, a subset of the field, specializes in the recovery, reconstruction, or investigation of accounting data.
What is the most user-friendly accounting software?
The most user-friendly accounting software is the one that most appropriately aligns with the specific requirements of a business and is able to scale as the business expands. Cloud-based accounting solutions are typically the simplest to establish, maintain, secure, and scale.
How can the process of bookkeeping be simplified?
Bookkeeping can be simplified through strategies that fall into three main categories: automation, organization, and planning. The single most impactful step to simplify bookkeeping is to invest in reliable accounting software.
How does one excel in accounting?
While maintaining bookkeeping records doesn’t necessitate an accounting degree, becoming a professional accountant requires specialized training. A Certified Public Accountant (CPA) must pass a multi-part licensing exam, acquire certified work experience, and engage in continuing professional education courses. Excelling in accounting involves diligent effort, keen attention to detail, and effective study skills.