The success of any business is largely dependent on two factors – maximizing sales and minimizing costs. And when it comes to cost management, it is necessary that you maintain accurate accounts of every financial transaction of your business. To help you out, we list below six accounting tips that will definitely help every small business in managing their finances better.
Personal vs Business Expense
Always keep your personal expenses separate from business expenses. Never mix the two as this can cause some serious accounting problems later on. Unfortunately, most single businesses pay very little attention to this and carelessly mix these expenses. This will create headaches for you when trying to calculate deductibles, taxes, and so on. Plus, you will never have an accurate figure of the profit and loss of your business since personal expenses are mixed up with the business accounts.
You may send an invoice to a customer on time. But this does not mean that the customer will honor the invoice and make payments as soon as they receive it. A few customers will hold onto that invoice for quite some time before clearing it. And this can negatively impact your cash flow. You might even find it difficult to meet certain expenses since you haven’t received any payments from your clients. This is why it is important that you do regular follow-ups on all the invoice you send. Call the client when you send an invoice and inform them of the due date. Call again after a week and ask about the status of the payment. Call them again and again at regular intervals. Only then will such customers clear the invoice by the due date. Having said this, do make sure that you don’t call them too many times in a short period of time as it can be quite a nuisance to the customers.
Save All Bills
Make sure to save all the bills involved in the business. These can include bills for the inventory, bills that deal with office expenses, bills paid for labor costs, and so on. These bills will be the proof that will back up the validity of the accounts. If you lose any of these bills, then you will have a tough time proving the accuracy of a transaction mentioned in the account books. In addition to having a physical copy of the bills, it is also recommended that you scan them and store the files digitally. As such, if you were to lose the physical bills due to some accident, you can always use the scanned copies to support the accounting entries.
Plan Out Big Expenses
You should also have a good idea of the big expenses you will incur over the coming months and start preparing for the same. For example, maybe you need to buy four computers for your business in about 10 months. It might cost you around $2000. If you decide to make the purchase in cash, then you will have to set aside $200 per month for 10 months. And by doing so, you will easily be able to buy the computers when the time comes. In contrast, if you had not planned for this purchase, then you will be forced to cough up $2000 in a single month. And that could have negatively affected your cash flow.
You may be great at marketing and managing the sales of your business. But are you a good accountant? If you are not good with accounts, then you should seriously consider outsourcing it to professionals. Never try to manage accounts just to save some money. Improper accounts will end up costing you far more than paying for an accounting expert. Plus, it is better to hire an account that has good knowledge of the type of business you are involved in. So, if you are a seller on Amazon, then hiring theamazonaccountants.com will be an excellent choice since they specialize in providing accounting service to Amazon businesses.
Every time you collect taxes on sales, it is recommended that you keep it aside and only use them for paying the taxes to the government. So, if you collect $10 in taxes on the sale of a product, then save the money in a separate tax account. Never take money from that account for meeting any expense, business or personal. Doing so will ensure that you are able to pay all the taxes on time. Otherwise, you can end up defaulting on tax payments.