All entrepreneurs have too much to do. It comes with the territory. As well as innovating and developing (by far the most fun part), there are also the mundane day-to-day tasks to take care of. If an enterprise is to flourish, looking after the pennies is one of the most important jobs.
Doing your accounts might not be the part of business you relish, but realising the benefits can help you get motivated. These include:
- Increased success in business loan applications
- More accurate profit and loss forecasts
- Realistic future planning
- An easier time when filing tax returns
- Lower accountancy bills
Bear the following tips in mind when you’re setting up your accounting system so it’s easy, quick and informative.
Understand What You Need
Different business models and sizes of business have very different accounting needs from each other. If you’re a sole trader, for instance, it makes no sense to bog yourself down with accounting software that demands you fill in fields relating to payroll.
Similarly, what you need to keep track of with regard to claimable expenses changes depending on whether you’re operating from home or renting premises, plus a few other variables.
Because accounting can either be very complicated or very simple, it’s best to understand exactly what kind of system you need from the outset. If the whole subject of bookkeeping is new to you, an accountant’s advice is invaluable. It’s neither prudent nor cost-effective to muddle through, only to find records are incomplete or wrong when the tax return rolls round.
As well as helping you set up an effective system, professionals can also advise on deductions and point out ways to avoid paying more tax than you need to. As the business grows, they can help track your finances and keep your business compliant with tax law.
Keep Separate Accounts
Life gets complicated fast if you muddle up personal expenditure with business spending. Opening a business bank account for the first time is quite exciting, but it can also be very tempting to use that business bankcard for personal use.
By rights, every transaction in or out of your business account needs an explanation, so while it’s easy enough to pay back the sum you effectively borrowed, explaining the how, why, and when can quickly get complicated. Be very self-disciplined when it comes to keeping business and personal finances independent from each other.
Get Paid on Time
Make sure you’re tracking invoices and payments.
Whichever accounting system you use, you should be able to see at a glance which invoices are still outstanding and which ones are paid. If you use a cloud accounting system that syncs with your bank account, this task is very much easier.
For those using either manual bookkeeping or an accounting package on their own computer, it becomes even more vital that you stay on top of daily, basic accounting tasks. During the early days, when you have maybe one or two clients, this may not seem very important. In the future, however, when clients may number in tens, hundreds, or even thousands, invoices can easily slip through and remain unpaid for months at a time.
Get as much as possible online, including payments you make as well as money you receive.
- Make purchases with a business credit card and pay it off each month
- Use debit cards
- Receive payment by bank transfer or other direct, online methods
- Generate and send invoices online
Automating as much as possible means you’ll cut down on your paper trail and save lots of time collecting, organising, and storing receipts.
When your business accounting is efficient and simple to understand, it becomes a useful tool for forward planning and can help you avoid cash flow problems. Getting a method set up right from the beginning, then tweaking and improving as the business grows, makes sound financial sense.