Top 8 Small Business Accounting Tips
When you open a small business, you usually only think of the perks—being your own boss, setting your hours, and creating a strong future that is yours. One of the more tedious parts that get overlooked is accounting.
You need to do the accounting—it can’t just be buried and forgotten about. And if you’re starting out or only working with a small team, you may not have staff to do the accounting so it falls to you.
Accounting may not be your expertise. We get it. So we’re sharing our top 8 favorite small business accounting tips so you and your business can succeed.
1. Keep Business and Personal Finances Separate
As a small business owner, it’s easy to use your personal finances to help with business costs. However, it is important to keep your personal and business finances separate to maintain clear financial records.
Having separate finances helps you better manage and organize your business activities. It can:
- Reduce stress and confusion at end-of-year reporting.
- Help you be more legitimate and professional in how you operate.
- Keep the funds in your personal savings account secure.
2. Keep Your Receipts
We’ve all done it. You get a receipt back, then it gets crumbled up and thrown away or misplaced. While in your personal life, this behavior can be more forgivable but in your business life, a receipt is essential.
Proper invoicing is a good tool for record-keeping on the customer end and keeping your sales organized. It can also serve as legal documentation in any disputes.
Having your receipts makes it easier to create accounting reports, and can help with any inventory at the end of the year. Keeping your invoices up-to-date, also helps keep your reports up-to-date, and that helps make your accounting easier overall.
3. Prepare and Review a Budget
Budgeting helps you prepare for the future. You can plan for future purchases and business growth—like hiring more employees or possibly expanding your location.
Budgets keep track of expenses versus revenue. They help give you an accurate financial picture of your business. This is also important if you have investors since they like to check on their investments.
Having a budget can help you define your goals and assist your decision-making process. You can see if your goals are financially realistic or if your timeline for them will work.
4. Analyze Your Accounting Reports
When you do your accounting, don’t overlook your financial reports. They can help you judge if you need to raise prices for services, or if you need to make adjustments to your budget. Reports can also help you trim unnecessary expenses or services so you can focus on more profitable ones.
They can help you see trends in your business and help you prepare for them. For example, if you have a store with inventory, it can help you know when to stock specific products so you don’t have as much overhead. Or, reports can show you if a specific product isn’t selling well. Then you know not to order as much or you can stop carrying it.
5. Invoice Accurately
Invoicing is a key component of your small business accounting. An invoice shows what money you are owed for services. Invoices can go to customers, vendors, and services.
Accuracy is key when it comes to invoices. Not only do they need to be accurate for clients, but they need to be accurate for your records. Then it’s easy to track who owes what, how much they owe, how overdue any payments are, and if there are late fees. It also makes it easier to send out late notices, if you need to.
Accurate invoices also help you with end-of-year reporting. If your records are up-to-date and accurate, then it makes your reporting easier. It lets any irregularities or outstanding bills stand out.
6. Understand and Use Basic Accounting Practices
Math isn’t everyone’s strong suit. However, when you first open your business, you can’t always afford to hire someone to do the accounting—you oftentimes are the accountant.
Since it falls on your shoulders, it would be a good idea to learn a few of the basic accounting practices for your small business, like:
- Cash Accounting
- Revenue and expenses are recorded as you receive them and they are paid, and you only record transactions when cash is spent or received.
- Accrual Accounting
- When you match a purchase with a receivable, based on the matching principle. Transactions are recorded when they are incurred rather than when payment is actually made. This gives a more accurate picture of finances.
7. Use Accounting Software to Help Automate Processes
As a small business owner, you make all the decisions. To make things easier for you and your team, use accounting software to handle processes automatically. Accounting software can automate different accounting practices like payments, payroll, reporting, invoicing, and taking inventory, among other functions.
This allows things to not fall through the cracks and be forgotten, whether it is purchasing, invoicing a client at a later date, or running a specific report.
If you’re not trained in accounting practices, adding it to a job can quickly become overwhelming and time-consuming. Using accounting software to automate a particular process gives time, and energy, back to you and your team so you focus on different areas of your business.
Bonus Tip: Hire a Professional to Set Up Your Accounting Software.
A question you might hear other business owners say is “Do I need an accountant for my small business?” And, while the answer can differ from business to business, sometimes the answer is no, you don’t. You may find you get a lot of the support you need from automating.
However, if it is within your budget, consider working with an accounting professional to help you choose the right software for your business and help get it set up. Then you know you’ve invested in the correct software and it’s being used to its full potential, making the change one less thing for you to worry about.
8. Outsource Your Accounting
Accounting isn’t for everyone. However, as a business owner, accounting has a large impact on what you do. Outsourcing your accounting to a professional has several benefits:
- It can free up your time to focus on other aspects of your business.
- There is a smaller chance of error when a professional accounting team handles your finances.
- An outside partner can take an objective look at your business and advise you on how to grow your business.
Working with Powered by Centri
At Powered by Centri, we know not every business is the same. That’s why we offer personalized help, designed for your business. We also follow up with you to check in, see where your business is at, and learn how we can help.