If you want your business to thrive and not just survive, you need to start implementing effective accounting tips. Proper accounting helps a company set itself up for success, while also letting it avoid critical problems that can put it at serious risk.
If you are looking for accounting habits that work, the following guide can help you understand which accounting processes you need to start implementing into your business — and verify if you are missing anything crucial in your overall process.
Why Is Proper Accounting Important?
Proper accounting is essential for any business as it helps owners, investors, and managers evaluate the company’s financial performance. Good accounting practices provide vital information in terms of profits. losses, liabilities, assets, costs and earnings. These elements are crucial in helping a company make important decisions, control critical processes, and plan for the future.
So, why don’t just any accounting practices work? Let’s take a look at the differences:
Poor Accounting Practices:
These practices could mean you are not always aware of the exact status of your finances or that you are entrusting your money to someone who is not qualified or trustworthy enough to handle the task — both of which can lead to theft, financial crimes, prevent you from strategizing for the future, and ultimately mean you are breaking the law.
Acceptable Accounting Practices:
These accounting practices can help you measure, identify, and communicate critical economic information to everyone on your team while also helping you build a solid foundation and track your overall cash flows.
5 Tips for Keeping Your Accounting on Track
Nearly 40% of small business owners feel financial management is the most tedious part of operating a business. As an entrepreneur, you need to learn how to handle this process and prevent accounting mistakes or you can end up hurting your business’s growth. The following tips are crucial to keeping you accounting on track.
1. Monitor Your Accounts
If you want to understand your company’s financial health, you need to follow multiple accounts. You also need to make sure you log any transactions completed for each of your business needs, and then adjust the balance accordingly.
Good bookkeeping involves keeping track of the following:
- Accounts receivable — the money customers owe you
- Accounts payable — the money you owe to another individual or company
- Purchases — business expenses such as supplies
- Sales — your company’s revenue
- Retained earnings — your company’s profits
- Payroll expenses — what you pay your employees
- Owner’s equity — owner’s investment in the company minus owner’s withdrawals
If you want to take it even further, consider splitting each account into a sub-account and track all product purchases and individual transactions. Accounting software is one of the best ways to make sure you are keeping accurate track of all this data.
2. Stay Organized
Having a process available that can regularly check the books is the first step toward creating a reliable invoicing process. A company’s success often rests upon its level of organization and its owners’ ability to quickly view what is working or not working for it. When these entrepreneurs can stay organized, they can see where the money is going, what money is coming in, and which aspects of their organization need improvement.
3. Develop Clear Roles for People Involved in Accounting
Ensuring success is not just about the numbers, but also about people. No matter the size of your business, you need to understand the breakdown of the roles involved in your accounting department. This can include how each section is divided, where the boundaries are for each group, that each accounting department area has its own focus, and that you’ve hired the right individuals with the necessary experience and education to perform necessary functions.
4. Place Importance on Budgeting
One of the best bookkeeping tips out there is the ability to budget. Budgeting allows you to create a spending plan for your business, which will ensure there is enough money for the things you need to do as a company. Following a budget can be beneficial in keeping your business out of debt — or helping you work your way out of it.
5. Use the Right Forms
Any company will benefit from using the right accounting forms to ensure the correct items are being documented. Each form will have an overall impact on a company’s financial information and accounting system. That is why making sure you are using the right forms will be closely tied to the accuracy of your finance data tracking processes.
What Happens If You Don’t Keep Clear Records
If your bookkeeping habits or record-keeping strategies are not clear, your business books will not accurately portray your company’s overall financial viability. When you do not have a precise accounting system, it can be nearly impossible to track your cash flow projections, maintain proper business finances, or keep an accurate balance sheet.
As a result, audits may be on your horizon. This means your company can expect two things: hefty costs and time-consuming processes.
What to Do to Keep Your Accounting on Track
Every business needs someone — typically a contractor or experienced bookkeeper — to keep its books in line. These individuals cannot help protect you against the IRS, however, so you need a trusted individual to help guide you through critical decisions in terms of your taxes and finances. In these situations, it is best to work with a trusted tax advisor who can help review your books, keep your accounting on track, and give you the tax advice you need.
Accounting Tips for Entrepreneurs Made Easy
A company’s owners must grasp certain accounting principles if they want it to grow. Those who are ready to take the next step beyond regurgitating formulas should begin with tactics that involve careful planning, clear organization, and divided team roles. If you still need further guidance, contact Silver Tax Group today! Let our expert team go over any accounting or tax-related questions you might have.