Tips for Small Business Accounting
There’s a saying among business people that the job isn’t done until the paperwork is finished, but this is a step that’s too often neglected. From a corner lemonade stand to a thriving retail shop, from a lawn mowing to contracting, keeping good records is an essential part of any business. Well-kept records provide the necessary information to file taxes, to show banking institutions that you can handle a loan, and to seek areas where your business can improve. Without them, you are flying blind in the business world. Good record keeping provides information for your many business transactions.
1. Record activities as soon as they happen
Automate as much of the process as possible. Convenient cell phone apps can make it easy to photograph receipts or checks as you receive them. With a good accounting program set up, it is often a matter of ticking a couple of boxes to accurately categorize transactions. When your income and expenses are recorded as they happen, it will be easy to reconcile your balance sheet at the end of the month.
2. Delegate your accounting
If you find yourself spending more time keeping records than transacting your main business activities, hire a professional accountant or bookkeeper. Keep in mind, however, that he or she will need information. Whether you use an app that will record your information, or you keep receipts in a shoe box, it is essential to have the information available for your record keeper. Write things down, note them in a PDA or snap a photograph with your phone – but record transactions as soon as possible. One of the cardinal rules of good accounting is to only record or claim information for which you have solid proof, such as receipts or invoices.
3. Have a rainy-day fund
Being in business for yourself isn’t like being an hourly wage earner or having a salary. Your income will sometimes spike up high, and other days will descend to the depths. Inevitably, the day that it is at its lowest will be the day that you need a major repair on a vehicle, a building, or you require medical assistance. A rainy-day fund can help smooth the bumps – just remember: If you borrow from your fund too often, it won’t be there when you have an emergency. Avoid using it for ordinary expenses.
4. Seek additional types of funding
While your business is small, you might be able to bootstrap it using your personal income, income from your business activities, and your ability to manage your cash. But the time will come when you want to expand. Crowdfunding, sales of shares, and similar activities might help boost your business to the next level. When that time comes, seek professional help. Seeking outside funding can be essential to developing a product or service, but there are complex regulations surrounding these resources. They will complicate your income tax return and might require upgrading a single proprietorship into a different business category.
5. Use a cloud accounting service
Set up a cloud account such as Folderit as a location for your record keeping activities. Decentralized cloud accounts keep your business information more secure than physical records, which can be damaged by fire, flood or vandalism. Back up your information to more than one device, and keep the back-ups in separate, secure locations. The industry standard is to have at least two current back-ups at all times, in addition to your current database.
Record keeping is rarely a favorite part of any business, yet it is a vital process for your success. Good record keeping helps you understand your cash flow, it’s essential at tax time, and it can suggest areas of your business where you can improve or grow.
The easier it is to do your record keeping, the more likely it is that you or your employees will follow through with the process. The better your record keeping, the more accurately you will be able to analyze your business processes, and the easier it will be to streamline them to save time and increase efficiency. It is even possible that as you practice your business accounting, you will begin to find it interesting as well as useful.
