Managing your company’s accounting and finances is one of your most important responsibilities as a small business owner. Proper accounting practices can help keep your business running smoothly and support future growth. Whether you handle most accounting tasks yourself or offload some responsibilities to professionals, stay actively engaged with your business’s cash flow, recordkeeping, and tax compliance. This article will explore six essentials you must know to account for your businesses’ finances efficiently.
Keep Track of Your Expenses
Recording all company expenses, big and small, is key to understanding your financial position accurately. Set a system for saving receipts, invoices, and other documentation of money going out. Group expenses into categories like rent, utilities, payroll, marketing, and travel to make records easier to navigate and analyze.
Come tax time, properly categorizing deductions will also save you time. Don’t mingle personal and business spending. Keep separate accounts and credit cards to avoid confusion and ensure all business expenses are properly accounted for.
Monitor Your Cash Flow
Know how much money comes in from revenue and investments and how much goes to monthly expenses. Look for ways to minimize outflow and maximize the difference between the two numbers. Build up a cash reserve or emergency fund with 3-6 months of expenses if costs rise or revenue dips.
This financial cushion provides stability and flexibility for your business. Create cash flow projections to determine how much capital you need to fund activities like equipment upgrades, new product launches, marketing campaigns, or expansion in the coming year. Look into financing or lending options with enough lead time.
Use an Accounting Software
Using financial management software can automate and simplify many bookkeeping tasks. Choose a system that meets all your requirements and technical abilities. Cloud-based options are convenient and accessible anytime. Accounting software can automate expense tracking, bill payments, payroll, invoicing, and other repetitive processes, saving time and reducing human error. Many programs integrate directly with the business bank and credit card accounts for automatic updates.
Most small business accounting software options offer tools to generate reports like income statements, balance sheets, cash flow projections, budget vs. actuals, and tax-related reports. These provide snapshots of your company’s financial health and insights to guide decisions.
Reconcile Accounts Regularly
Match your internal expense and revenue records with statements from business banks and credit card issuers monthly. Look for any unauthorized charges or inaccuracies and dispute them immediately. Regular reconciliation helps avoid fraud and ensures recordkeeping is on track. Closely review statements to catch errors like duplicate charges, missed credits, or improperly categorized entries.
Correct your accounting records and contact vendors or banks to fix mistakes. If you find improperly classified or not initially recorded expenses, adjust your accounting records as needed. Updated financial records are essential for managing your business and staying tax compliant.
Pay Attention to Tax Deadlines
Know what business taxes you are responsible for, like income, sales, payroll, and property taxes. Understand what forms and payments are required and stay updated with any changes each year. Meet all deadlines to avoid any fines. You must maintain thorough records of all tax-related revenue, expenses, deductions, payments, and filings. This documentation will support the information reported on your tax returns in case of an audit.
Records should be kept for at least 3-7 years depending on the type of tax. Submit quarterly tax payments, tax returns, and other required filings. Set reminders for yourself well before due dates and account for any final deadlines on weekends or holidays. Procrastination can result in unnecessary fines and interest charges.
Get Professional Help When Needed
For many small businesses, hiring an accountant or bookkeeper, even part-time, can help set up accounting systems, ensure accuracy, and gain a professional perspective on the company’s finances. Consult an accounting or tax professional if you have questions on business tax matters or complex filings like business property depreciation schedules. They have specialized expertise to help you submit accurate returns and make choices that minimize your tax liability.
Financial advisors can advise small businesses on investing excess cash, obtaining financing or lending, succession planning, and employee benefit programs. Seek out their guidance for significant financial decisions or long-term business planning.
While managing the accounting aspects of your small business may be a challenging part of your job, establishing good practices and discipline around finances will pay off significantly in the health and stability of your company. The more you know about your company’s financial position and outlook, the better you’ll be to lead confidently and capitalize on opportunities as they arise. With the right systems and oversight, small business accounting doesn’t have to be a source of stress — it can provide freedom and insight to scale greater heights.