Regardless of your industry, your business needs to stay on top of its accounting. Unnecessary issues and obstacles resulting in slowed business growth could happen if you fail to keep accurate accounting records. Accounting encompasses keeping track of your business expenses, monitoring financial reports, and collecting payments in a timely manner. These tips below will help make your accounting less stressful, and far easier.
Track & Sort All Business Expense Receipts
Getting in the habit of tracking and sorting your business expense receipts as soon as you receive them can save you a headache in the long run. Even the most organized business owner can misplace a paper receipt. By taking a picture and uploading it to your accounting platform or adding the information into a spreadsheet in a timely manner, you’re ensuring that you won’t fall behind on your bookkeeping.
Keep All Donation Receipts
Most donations are 100% tax-deductible. However, you need to keep receipts or proof of donation so you can claim them on your taxes. Recording donations and contributions like all of your other business expenses, but in their own category, will make your accountant’s job easier because they have been kept separate from your regular business expenses.
Create an All-in-One Accounting System
One of the best ways to keep your small business accounting organized is by having a system in place for your accounting needs. When looking for an invoicing, payroll, and payment system, it’s best to choose one with longevity – meaning, if you want to transfer all of your small business accounting records to a new platform, it could be costly for both time and money.
You will also want to be sure that whichever accounting system you choose is secure and compliant; if you decide to use a third-party accounting system, making sure that the accounting software you select is protected with 256-bit SSL encryption. The servers that it is stored on are scanned for vulnerabilities frequently, ensuring the data you send is safe and secure.
Having an invoicing system that is linked to a payment system will make it easier to apply payments that you receive from your customers, because you’ll already have an invoice to tie the payment to.
Include a payroll system in this all-in-one small business accounting system, and you’ll be able to track payroll expenses, including both paying your employees and your portion of taxes, in your expenses.
Maintain P&L Statements
Profit and Loss statements are the most important metrics for small businesses. You might find that your sales will ebb and flow throughout the year, depending on the time of year. Some things, such as seasonal sales, are able to be prepared for advance, but there are other things outside of your control. Keeping an accurate P&L statement quarterly, and then yearly, helps give you a quick snapshot of the health of your business. P&L statements should include operating expenses, operating income, revenue, gross margin, cost of goods sold, and net profit.
Continue to Increase Your Gross Margins
Cost of Goods Sold applies to both services and physical products. Working to lower your Cost of Goods Sold will help your profit margins. As your business grows, you may be eligible for bulk discounts from vendors, or you could be able to negotiate for lower prices by extending a contract.
Collect Taxes (If Applicable)
Businesses that operate locally are able to collect payments in person and can add on sales tax at the point-of-sale. However, if you operate online, different states and countries have different tax rates that need to be accounted for. Not all small business accounting systems can help with the different tax rates, so take that into consideration when choosing your software.
Ensure Accurate Records
The more often you update your accounting records and tie payments to invoices, the less likely issues down the line will arise. Keeping files organized and reviewing your expenses each month will ensure that what’s going out and coming in is accurate. When working with your accountant to file quarterly and yearly, you might miss an issue from the beginning of the quarter or year, and not necessarily remember what the situation was that caused this issue.
Understand Your Tax Obligations
From the moment you register your business, your taxes are affected based on the type of entity you create. Knowing what the obligations are for a partnership versus a corporation, or even a Limited Liability Company, will help you determine which business structure is most advantageous for your business. Your first investment in your business should always be pre-business formation expenses, and you don’t want to skimp on them. This is an investment for the longevity and security of your business.
Keep a Separate Business Bank Account
One of the things every accountant will tell you when starting a business is to have a separate bank account for business expenses. Even if you’re an independent contractor or freelancer, you should keep your business expenses separate from personal expenses. Performing monthly reconciliations on the account helps make sure your accounting and bank statements match.
Look for Ways to Improve Cash Flow
It’s important for every business to improve cash flow. Adjusting payment terms for slow-paying clients for a shorter time gap can help get payment faster and bring cash into your business faster.
Keeping your finances organized and on track are important to your business running smoothly. For help with keeping accurate small business accounting records, contact us today.