If you own a small business, then you need to know about business accounting because it is one of the most important aspects of your business management.
Business accounting explains how to use data collection to record all of your business transactions, how to prepare your own financial statements, how to pay taxes, and how to operate your business. Business accounting also has chapters on cash flow, expenditures, employees, and business laws.
This is the process of tracking your company’s financial transactions and reporting them to the management, CEO government, your own personal record keeping, or even to your creditors. Business accounting can be a bit complex, but it’s important to get it right.
In this article, we’ll walk you through the basics of business accounting and show you how to keep your books in order be it in a hard copy or soft copy.
What Accounting For Small Businesses Is About
Accounting is the process of keeping business books and other financial data for future reference. Small-base business accounting includes numerous measures such as taxes, management, payroll, acquisition, and inventory. The purpose of accounting is to calculate your business income, expenses, and assets. This is what you need to pay your bills, take care of your business, and provide accurate financial statements to your creditors.
Accounting will help you manage your business finances and your business’s growth. Business accounting is also a great skill to have if you are considering starting a business.
How To Keep Good Accounting Records
1. Track Your Business Records Accurately And Regularly
The cornerstone of any good business and book-keeping is accurate and effective expense tracking. It’s a crucial step that let’s one monitor the growth of your business, build financial statements, help keep track of deductible expenses, prepare tax returns, and legitimize your filings.
The first thing to do when starting a business is to establish an accounting system to organize receipts and other important records that are related to your business. That means you need to have an organized, paper-based system to track your business transactions.
When you set up your accounting system, be sure to include a place to enter your daily business transactions. These may include sales, purchases, bill payments, or other business-related transactions. You should also set up a separate place for bills that are paid on a monthly basis. You should also set up a separate place to enter your business expenses. These may include advertising, rent, salaries, or anything related to your business that you spend your own money on.
How do you solve this if you find it difficult to always check your accounting records? the best this is to set up a specific time to review. Setting a weekly time to review financial records will avoid keeping some financial records for too long so you can stay on top of them. Carefully managing accounts receivable and payable, and establishing a set schedule, will ensure that you stay on top of more of the cash flow side of the business so you can get a clear view of finances.
2. Avoid Unnecessary Spending
When running a business, it is very easy to get carried away with frivolous spending on things you don’t really need. For example, if you take out the business capital or profits from your business to buy personal things when you should be investing in your business and increasing your return on investment (ROI) then you are heading towards doom in that business because the financial statement of such a business will never be healthy. To avoid this you need to learn to separate your business’s financial profits into three different categories
1. Fix capital: This is more like your fixed business finance that acts as a backup for your business in terms of bankruptcy or liquidation. This money can never be touched unless during critical times.
2. Investment Fund: This is the part of your business finance you must invest into the business, new business ideas, or any good media that will bring more money into the business account.
3. Expenditures: This is business finance also known as work-in-progress because it is going to be used for everyday activities both in the business and personal use. Although this money is meant for little disbursement in the business and personal affairs it must be budgeted wisely else you might end up exceeding the intended amount.
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4. Use Proper accounting Software
Determine what accounting software will benefit your business most. If you do not know which software you should purchase, consult with your accountant who can provide you with in-depth advice. Buying an online accounting program allows you to access your information on a computer anywhere you have an internet connection. Doing so makes it easier for your accountant to access your files. An online program also enables online backups which are always available but it is strongly recommended that business owners maintain a hard copy of the critical files as well. Although storing on a computer can be easier than having a lot of paper documents, an offline program is also advisable so you don’t lose all forms of storage at once.
5. Invest In An Experienced Accounting Manger Or A Bookkeeper
Having your own accountant comes with benefits. As your business begins to grow, you might want to think about investing in a bookkeeper or accountant. Although it is costly, it comes with a tax deduction since you would not have to pay salaries but with a bookkeeper, you will not need to worry about keeping your business records, something else you will have to worry about in charge of the day-to-day operation of your business.
Keeping good accounting records in your small business help determine if your business is financially healthy or not. They also help you get a clear view of where your business stands at any given time. Accounting rules and regulations change over time. You will have to know about the latest accounting rules and regulations to stay on top of the game. For further assistance, contact us, and don’t forget to subscribe to our mailing list to get notified when we publish new articles like this.