As an entrepreneur, areas such as marketing, fundraising, product development, etc., keep you occupied most of the time. As a result, accounting typically falls by the wayside and does not get the due share of attention.
If you are not numbers-oriented, going through numerous financial records will prove to be a nightmare. However, you need to realize that only accounting can show the best possible aerial view of your company’s performance. Even the most innovative ideas in the world will fail to keep a business afloat if it goes bankrupt. So whether you like it or not, effective bookkeeping is crucial to any startup’s long-term success.
We have put together a list of proven bookkeeping practices that will ensure you stay on top of your new company’s financials:
#1: Get professional help
With some experience, you may be able to manage the financial records of your startup. Yet, you cannot match the expertise of a professional accountant. Even if you simply hire an accountant for a few hours every week or month, it will make a significant difference.
Among other things, a professional accountant will assist you in filing your taxes correctly by informing you of any potential fees and locating loopholes. This will allow you to save money on deductions. Remember, hiring an accountant won’t make up for all the benefits listed here. So we would highly recommend you hire an accountant who has done at least BBA in accounting from a reputable institution.
#2: Separate personal and business finances
Mixing personal and business transactions is one of the most common bookkeeping blunders small business owners make. It will pave the way for an abundance of issues for your company right off the bat. Regardless of how hard you try, these issues will keep cropping up repeatedly.
Therefore, open a business bank account as soon as you decide to move ahead with your business venture. To give you a better idea, we are listing some of the tell-tale benefits of separating personal and business finances:
- Tracking cash flow: Separating your business and personal accounts can help you better understand your company’s cash flow. It will make it easier to monitor your balance sheet and understand how your firm is performing at any given time. Besides, you will also be able to forecast your future cash flow and improve decision-making along the way.
- Tax preparation: Keeping track of your overall spending is instrumental when paying taxes. You must stay current on every receipt. Having a separate business account means you will have a comprehensive collection of business-only data that will save you a lot of time and hassle.
- Developing business credit score: Like your personal credit score, your business credit score reflects your company’s creditworthiness. A good credit score will help you get better terms on business loans and lower your insurance costs. Keeping your business account separate is the surefire to developing a strong credit score for your company.
#3: Automate account receivables
Almost every business owner lays down explicit payment terms and communicates the ramifications of nonpayment. This, however, does not guarantee that your customers will pay you on time. You may need to follow up with emails and phone calls to remind them. But in case you are running a busy startup, you might not have time to follow down with your customers. That is where automation rolls into action. You can set up automatic emails before and after their payment due date.
#4: Conduct a quarterly review
Examine your accounting records in detail at the end of every quarter. For example, look for patterns such as revenue growth, decline or rise in sales, late payment from clients, and so on. Speak with your accountant about how to look at the broad picture so you can better prepare for future capital demands like purchasing new equipment or expanding your business.
#5: Create a payroll system
It is necessary to establish a payroll system if your firm has at least one employee other than yourself. Maintaining employee personnel files and coordinating the completion and use of specific tax forms, such as the W-2 form, are everyday tasks for a payroll system. These documents assist you in withholding the appropriate amount of money from employees’ paychecks for tax purposes and ensuring employees receive the correct salary. If you are wondering how to get started with a payroll system, look into different software options or consider employing a payroll service that handles the majority of the work for you.
#6: Create your accounting chart of accounts
The chart of accounts (COA) is a document that enlists all of your business’s primary financial accounts. This can comprise both assets and obligations, such as furniture, cash, loan payments, vehicles, and so forth.
Companies can display their financial health to investors and develop crucial financial papers by organizing these elements into an easily understandable format. It can also be a valuable tool for entrepreneurs to understand their assets and keep track of their business activities.
#7: Keep an eye on hefty expenses
Labor expenditures are the most significant expense for many small firms, followed by inventory. Consequently, a fair proportion of small firms outsource work to third-party service providers who charge an hourly rate to save money on labor. Because these service providers may not need 40 hours per week to do your work, this may be a more cost-effective option.
Time-tracking software can assist business owners in determining how much various jobs cost the company, allowing them to better budget and control these costs. Inventory turnover ratio, inventory carrying costs, amount lost to outmoded inventory, and other critical variables can help companies reduce high-cost expenditures.
Final Note
There is no getting away from the fact that entrepreneurs are good at wearing multiple hats. They often undertake several responsibilities to save money. With that said, business owners have a pretty bad record when it comes to staying on top of bookkeeping. Guess what? The bookkeeping tips listed above will empower you to handle bookkeeping affairs like a pro.
