Accounting is one of the most significant aspects of business organizations and of course, the most neglected responsibilities. Small business owners who tend to keep themselves busy with glamorous development tasks don’t look for many reasons to bow out from their accounting duties.
It’s understood with your small-scale budget you cannot hire an accountant, but definitely, you can be one, if you are careful. Accounting is not something you should be afraid of doing, you should know how to manage your numbers, keep them clean and accurate. When I say small business, it’s obvious you can spare some time to do that. In this blog, I’ll walk you through few accounting tips that would assist you throughout your fiscal year.
Significance of Accounting for Small Business
Straightaway, I could start explaining you with the tips, but it is necessary you know what and why’s of accounting.
From securing a good finance to managing financial records, small business owners have to handle the affairs carefully.
Coming to the significance, accounting and financing are necessary to be in a flow with short-term and long-term business goals. Without having a good knowledge of what’s going on in your books you cannot protect your business from liquidity shortages or other financial complications.
A small suggestion for you, I thought maybe if you are new to accounting you should know this. While preparing financial statements you should be following guidelines, generally referred as ‘generally accepted accounting principles’ or ‘GAAP’.
Sans proper accounting practices, a business will fail.
Now, coming back to what we are supposed to discuss, look into these accounting tips and follow them if you think you cannot afford a personal accountant.
TIP 1: Keep your Accounting Records Clean & Accurate
Before you work on your accounting books you have to make sure the numbers are proper.
No one better than you know how things are going, so managing the accounts rest completely in your hands. It helps you stay organized, but speaking of financial funds, any time you want to take a business loan, your accounting book helps you make the deal.
Also, you need to check where you stand in terms of tax. How are you liable or what is the financial status, are you in a good shape? You will find answers to these without scrambling much, so keep your accounting book neat and clean.
So how to keep account book clean?
Maintain separate business and personal accounts.
Maintain three sets of records – Cash book, Sales invoice file, and Purchase invoice file.
Take time and use the right online accounting software.
An invoice is a document that is sent to your customers to show a transaction has taken place and you the issuer are owed a payment. When you are preparing one, you should do that accurately, because it’s a kind of asset for your small business.
An invoice is a critical information for a business. You work day and night for your client and send him a wrong or inaccurate invoice; it will cost you his trust.
Coming to the elements of an invoice, the date is essential information because it defines the credit duration and the due date. Get the date on which the goods were billed wrong and it is you who will bear the brunt. Your payment will be delayed.
For your guidance, an Invoice represents an invoice number, the name, and address of buyer and seller, description of items/products, the date of shipment, description of items, sales tax (if any), payment terms and the grand total.
TIP 3: Never Miss the Tax Deadline
You don’t have some personal accountant to remind you about filing tax; you have to do it for yourself. So, if you miss one, be prepared to pay the penalty.
I’ll tell you (in more words) what happens when you fail to file an income tax return.
IRS will assess your business with 5% per month penalty.
The penalty will continue to rise till you file the return.
The penalties include Failure to file penalty, failure to pay penalty, and underpayment fee.
In case, if you need more time to prepare for federal tax return, you can always file for an extension.
Tip 4: P&L Report: Do it right
Profit and loss, the numbers define your competency to lead a business, at least investors see that way. With a profit and loss report, you can easily summarize the financial performance of different key areas of your business as per monthly, quarterly, or yearly basis.
Small businesses always have this responsibility to manage how they spend or reduce the expenses. A detailed report on such will help to do that. P&L management is one such practice, a necessary practice that allows doing it right.
So make it a point to create P&L reports as per your convenience. Do it weekly, monthly, quarterly, or annually, but make sure you are, because at some point of time you have to determine whether your business is growing, declining, or stagnant.
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