Whether you’re just getting started or you’ve been running your small business for some time now, you should know by now that owning a business comes with a lot of tasks you need to handle. One of such is your accounting records.
As a small business owner you can never boast of success if you allow your accounts to get out of your control. It’s simply one of the most basic things that business owners need to get right.
That’s true for new, young entrepreneurs and experienced business leaders alike. The moment you take your eye off the ball, things are bound to slip away from you.
But there is really no need to be too daunted by the prospect of looking after your business' accounts properly, though. It’s something that certainly can be done if you’re willing to learn and put in some hard work.
To get started and regain control of your small business accounts, you need to first know the basic rules. These rules apply to all kinds of businesses. They are the basic principles upon which good business accounting practices are based.
When you know and understand these rules, your task will become so much easier, which can only be a good thing for you and your business.
You will also need to know about some of the common pitfalls and mistakes that are experienced when managing a business’s accounts.
Below is what you need to know about small business accounting so your business run smoothly and profitably.
Small Business Accounting Rules to Follow
1. Track Each and Every Expense
Every little thing your business spends money on should be tracked and recorded. This is something that many people don’t realize is necessary. But all those small expenditures will mount up over time, so it’s always best to be clear about where the business stands.
To do this properly, you will need to have a system for organizing the business’ receipts. Remember that some of these small expenses might be tax deductible, meaning you could get a chunk of money knocked off your taxes later on. This makes tracking every expense and keeping every receipt even more worthwhile.
2. Develop a System for Bookkeeping
Do you have a good bookkeeping system in place for your business?
If you don’t, your business needs to fix this fast. You need to be using the best software available in order to ensure that you don’t make any mistakes. There are so many accounting software options out there, and they make your job of keeping control of the accounts so much easier than it would otherwise be.
You can also use things like intuit checks to add some extra security and oversight to your business' finances. The system you eventually develop will be unique to your business; just make sure you have one.
3. Separate Business and Personal Finances
For many people who run small businesses, there is some crossover between their personal finances and the business’ finances. It’s important to make these separate from one another if you want to succeed and keep the finances in order.
You should aim to set up the business in a way that allows you to have limited responsibility. This will mean that if the business has debts, they won’t have to be paid by taking away your personal possessions. This is important for anyone who is setting up a business by themselves. If you fail to, your home and other assets could be at risk if things go badly wrong.
4. Follow Up on Invoices
Invoices are important because everyone wants to get paid when they’re owed money. But when you run a small business, it’s often a case of sending out the invoice and then forgetting about it. This is not the kind of practice that will be good for your business’s finances, though.
You should make sure that the invoices you send out are tracked. That way, you can follow them up and make sure you receive payment. For many companies, unpaid invoices are a real problem. And if you let them pass by without ever getting paid, the business will be deprived of its money.
5. Set Up a Strong Payroll System
If you hire anyone to work for you, even if it’s not on a full-time basis, you will need to have a payroll system in place. It’s not as simple as it might sound because you will have to make sure that the company is withholding the right amount of money to be paid in taxes.
If you don’t have a proper and professional payroll system in place to deal with these tasks, you will never manage your workforce properly. Things will become messy and, inevitably, mistakes will get made.
Setting up the payroll system isn’t a huge task, but it will certainly save you time and stress later on, so don’t put it off for long.
6. Determine Your Tax Obligations
Finally, you need to fully determine your business’ tax obligations. There are big consequences for businesses that fail to pay their taxes. It’s not a situation you want to get your business in, whether it was intentional or not.
If your business is run as a corporate entity, its tax obligations will be separate from your own personal tax obligations. And that means that it will have to pay corporation tax.
If you are confused by the situation in any way, don’t hesitate in hiring a professional tax advisor who will be able to clear things up for you. It’s better to do that than to make a big mistake.
Major Small Accounting Mistakes to Avoid
- Simple Mathematical Errors
It’s sometimes the case that simple mathematical errors, even if they seem small at the time, can have a big impact on the overall accounts. It’s these simple errors that could lead to you getting a view of the business’ accounts and financial situation that is less than accurate.
When you have inaccurate records to use, you will make decisions that are wrong because they won’t be based on the real situation that the business is in. So, always check and double check the records before pressing ahead. This is an important thing to do, even if it might seem trivial now.
2. Taking a Short-Term Approach
Taking a short-term approach to your business finances is not an option that is even worth considering if you want to sort things out properly. When you only focus on where the business’ finances are heading in the immediate sense, you won’t be prepared for what could be heading your way further down the line. That would be a big mistake and leave the business unprepared for future challenges.
So, to ensure that your business is sustainable in the long-term, you should take an approach that takes into account the future of the business. How is it going to adapt? Is there going to be money for future investment? These things are important.
3. Getting Too Far Ahead and Forgetting the Basics
When you try to get too far ahead of yourself, you start becoming concerned with things that might not be so important. Yes, it’s a good thing to want to learn more about accounting. But only do this if you think that you have a firm grip on the basics. The basic things are the ones that matter most. And if you can’t get those right, then you’ll have a problem.
So, don’t try to complicate matters if they really don’t need to be complicated. It’s a classic mistake, but one that doesn’t have to be made. When you run a small business, you only need to get the basic things right to keep your business in strong financial shape.
4. Not Getting Help When It’s Needed
Many business owners just assume that they are capable of going it alone when they start out managing their accounts. For small business owners with relatively simple financial situations, this might be the case. But you should be aware that if you are focusing on the financial side of things, then you will probably have to make sacrifices in other areas. You can’t ignore that fact.
You only have so many hours in the day, and it’s up to you to split your time between different tasks. If you think that you’re not going to be able to dedicate the necessary amount of time to the accounts, you might want to hire some help.
5. Falling Behind
Falling behind with the accounting tasks that you need to take care of is one of the biggest mistakes of all. And the dangerous thing is that it’s so easy to do.
If you step back and stop paying attention to what you’re doing and what needs to be done for even a couple of weeks, you can fall really far behind. Making up that ground and fixing issues and problems that have arisen while you were distracted can be a huge challenge.
In truth, many business owners never manage to regain control of their finances once they stop paying attention to them. So, make sure that this is something that you are focused on all year round.
Now that you know more about what it takes to manage your small business’ accounts properly and professionally, it’s time to get down to work. Let the information and warnings above aid you as you try to make your business’ accounts balanced and healthy in the future.