As a small business owner, you have to put in place measures that will help ensure your business achieves sustainable growth. One of these measures is accounting, which is crucial in managing any business’s finances.
Otherwise known as bookkeeping, accounting is a fundamental element for any business, big or small. It’s intertwined with almost every aspect of your business and plays a great role in its success.
With accounting, you’ll be able to keep track of your income and expenses and analyse the financial health of your business. You can then use this analysis to make sound decisions aimed at business development.
As a small business owner, you may find yourself running every department of your business yourself. This means that you may need to be an accountant as well. To help with your accounting process, this article highlights several key hacks to ensure that your finances are in order.
1. Open a Business Bank Account
Never mix your personal affairs with professional ones. It is highly important that your business income is kept in a separate bank account.
The primary role of your business-only bank account will be to handle your business finances. This way, you’ll have organised and accurate records of how, when, and where your money flowed in and out of the account. Thus, you can easily track your finances.
This can also save you a lot of pain at tax time by preventing the need to rectify jumbled-up bank records.
2. Use Tax Software
Taxes can be very confusing, especially if you don’t have prior experience in calculating them.
This is why it’s important to keep an accurate record of your business type, finances, and related taxes. For instance, if you’re dealing with goods and services, you should be well informed about the Goods and Services (GST) tax.
You may also want to consider incorporating tax computing software to make the preparation and filing of your taxes easier and compliant. One such method is Single Touch Payroll (STP), which allows you to easily forward your employees’ payrolls to the government. If you have employees, you need to perform payroll accounting activities. This involves recording your employees’ payroll data (salary), as well as their payment schedule, deductions, taxes, and more. Such information is usually required by the government for taxing purposes.
In addition, familiarise yourself with all the taxes applicable to your business or industry, and organise your records through a digital platform. Accurate online record-keeping will significantly simplify your tax filing process.
3. Study Your Profit And Loss Margins
As a small business owner, you want to see your enterprise grow to outstanding levels. One way of realising this is by reviewing your profit-loss margins.
To assess your business’s profitability, you need to calculate your net profit margin. This is the percentage of profit generated in relation to the total revenue.
Once you’ve established these two metrics, it’s easier for you to know how your business is performing and hence make choices that will see its development. For instance, if your net profit margin is at 15-20%, then your business is doing very well. On the other hand, if you’re at a loss, you can craft ways to cut expenses and increase revenue.
To cut expenses, you may want to purchase raw materials in bulk, downsize your team of workers, relocate to cheaper premises, and other such measures. To increase revenue, you may want to switch to more effective advertising methods.
With time, you’ll be able to make informed financial plans and achieve your goals faster.
4. Track Your Expenses
This is perhaps one of the most crucial aspects of your small business accounting. Many small businesses undergo distressing times because of failure to keep track of their expenses. You should, at all times, avoid underestimating small costs, as these always accumulate with time.
If you have receipts of the smaller items you bought or services you acquired, keep them in a safe place somewhere, and do this immediately to avoid losing them. Later, it will be easier for you to access them and feed the information into your accounting books. For larger expenditures, like the costs incurred in acquiring raw materials, incentives, labour, salaries, and logistics, you’ll need to improve how you organise your records for easier analysis and retrieval.
Here are a few tips on recording your expenses:
- Group the expenses into specific categories
- Note down the reason for the expenditure
- Organise them by time and date
The most important thing is to keep the entries accurate and organised, and do it promptly.
5. Automate Accounting Processes
In this digital era, there’s a need to do things in a modern way. For instance, you can computerise your business’s accounting processes. Presently, there are many types of accounting automation software available. If you aren’t sure which one to go with, you may wish to consult a specialist.
The perks of automated accounting processes include:
- Speed: Accounting software computes much faster than human beings. You can get the results of complex computations at the touch of a button.
- Accuracy: Human calculations are prone to errors, which may end up being costly to the business. Accounting software has sophisticated algorithms to detect such errors and correct them accordingly.
- Timely updates: Your financial reports are always presented on time. Once you set your system to provide them on a specific date, you can then use the report to make solid plans that will bring more positive impacts to your business.
6. Understand Accounting Basics
Never stop learning. Even the most outstanding accountants have to go through training to improve their skills continuously. Make sure to get acquainted with the basics, then build your accounting capabilities from there. Keep yourself in the know about the latest accounting trends that may crop up in the industry and learn how to use them to your advantage.
Being a small business owner, it’s understandable if hiring a professional accountant isn’t among your top priorities. This leaves you responsible for accounting and bookkeeping. However, it’s crucial that you understand these two aspects of tracking finances so as to remain financially sound. Furthermore, even if you employ a professional, it’s always good practice for the manager to be knowledgeable of the different areas of their business.
Takeaway
Accounting for a small business becomes easier when you start from the basics. One aspect that stands out is the use of modern software, such as STP, for your accounting needs. Don’t hesitate to contact an accountant if you require assistance. Good luck with your small business financial goals!
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