Why waste your creative energy on clerical work when that time could be better utilized for the growth of your brand?
Small businesses often find it confusing to deal with the accounting aspects of their company. Many entrepreneurs only know the basics of accounting, which is elementally inadequate to effectively carry out these operations.
As such, isn't it sensible to gain some insight into how things work in the books of your company?
Through this post, we will highlight certain accounting tips for design firms that will help you steer clear of inefficient practices in business accounting and, possibly, give you a clearer understanding of how to do bookkeeping while avoiding errors.
In order to achieve error-free tax payments and avoid penalties, you need to track the movement of funds through your business.
Establish a protocol through which this movement is observed and updated in your database (whether documented or digital) periodically. Follow these guidelines to ensure all your data is in its rightful place when you need to refer to it:
Deciding on a weekly, fortnightly, or monthly schedule to update your business's receivables log will go a long way in ensuring that all your reports tally with the revenue accrued.
Try not to wait for the tax deadlines/due dates to start your data entry; this may lead to erroneous inputs and cause you to overpay or underpay your liability.
Since most of the transactions today are digitized, it is easy to misplace receipts for cash transactions in your business. These 'unknown' expenses might not end up in your books altogether, interfering with your final numbers on reports.
Make it a practice to retain the receipts for all cash transactions to log them into your system efficiently. Dedicate a storage space in your office for receipts such as these - go back to them at fixed intervals and feed the numbers into your database.
Let your employees know of this as well, so you don't always have to be involved hands-on. This handy accounting tip helps generate a more accurate financial report.
Ever noticed a debit of $200 from your business account that you couldn't recall? Although your expenses are not happening through cash, it's still possible to forget digital payments and wonder where your money went.
To avoid situations like these, make it a practice to ask for transaction receipts from the vendor, even if you buy fuel on your company credit card. Thus, you can eliminate the 'unknown expense' field from your logs for good.
A cash flow statement might not sound useful in the short run, but a long-term analysis of this statement works wonders for an organization.
By comprehensively depicting the flow of funds within your business on a temporal scale, you can easily assess the financial health of your enterprise. Many associated or subsequent operations (such as resource allocation) can then be optimized accordingly and efficiently.
Managing cash flow statements effectively is, perhaps, the best tip for small business bookkeeping basics.
'Accounting' and 'bookkeeping' are umbrella terms, really; the actual processes taking place underneath these terms are far more diversified than meets the eye. Learning how to do bookkeeping majorly involves organizing various numbers into their respective heads.
Every small business owner should know the difference between these two pieces of paper:
- An invoice is a record of services that your business provides and the amount charged for these services. When you raise an invoice, your business is owed compensation from the receiver of your services, i.e., your client.
- A receipt is a confirmation of payments made against an invoice raised for the services of the provider. It basically closes the loop of business between a service provider and a client.
It isn't unusual to find records of invoices without any corresponding receipts in the accounts database of a small business. Consequently, it impacts the profits as shown on paper.
You can solve this problem by using a unique identification code or number for each invoice and its corresponding receipt and implementing regular follow-ups.
There's something to be said about keeping your professional and personal lives separate. But, unfortunately, with small business owners, the line between business and personal expenses often gets blurry.
This practice demands unnecessary and entirely avoidable man-hours to be invested in separating the two expenses. Moreover, personal expenses being billed to your business card will bring the numbers down for your company.
A single ledger that depicts every single penny moving through your offices will make your life genuinely difficult when it comes to filing taxes. Therefore, every vertical that your business has must have its own accounts.
On top of that, each aspect of your business should be accounted for individually for better financial clarity. For example, there should be separate ledgers for payments received and owed, for working capital and retained earnings, for payrolls and retainers, for purchases and sales, etc.
It not only makes it easier to search for specific data entries but also generates more accurate financial reports at the end of the term.
A whopping 71% of small (and medium) business owners outsource their tax preparation to accounting firms, and 67% of them are satisfied with their accounting services!
If you own a business in the line of creativity, it doesn't make much sense to spend your time playing desk-jockey with numbers. Hiring a professional bookkeeping service to take care of these tasks for your business saves you time and energy while maintaining greater accuracy.
Alternatively, small business owners can take the assistance of accounting software, provided they can spare time to manage data entry yourself.
Accounting doesn't only accomplish mindless, computerized number-crunching and data entry: it also extrapolates this data onto charts and helps you analyze your own finances.
Charting your finances over time will make you see the behavior of your business in the market and compare it meaningfully with your competitors and their progress.
Small business owners must take note of the need to constantly stay in the game when the competition has sharp edges. Fund allocation for future business strategies can be optimally planned through such forecasts.
Generating a forecast from entered data is not a manual process anymore: accounting software makes it possible to chart of accounts for your finances in a few mouse clicks.
Technology, when incorporated into the daily ins and outs of how a business functions, can dramatically streamline your operations. In fact, roughly 64% of small and medium businesses use accounting software for efficient functioning.
As your business grows, your accounts will only become more overwhelming. Accounting software allows for automation where your business cannot spare dedicated manpower or long man-hours.
A creative mind works best when there are no distractions. Leave the bookkeeping to the professionals at Fincent so you can get back to doing more of what you love -- building your business and making it successful.
Fincent: Your Business's Personal Financial Wizard - From Bookkeeping to Tax Filing