Most business owners are not totally excited at the prospect of managing their business finances. However, since most small to medium business owners cannot afford to hire somebody else to run the finances of the business then it’s possible you will have to be compelled to become involved to some extent. This isn’t a bad thing; it will just make sure that you recognize where your business stands financially, where you will be able to economize and where you will be making money the most.
Make no mistake that understanding the finances of your business will determine new business opportunities for you. This is why having small business accounts is so important. Managing business finances isn’t significantly troublesome however it will need a particular quantity of hard work and it will need regular updates. So, how to do it?
Invoices- It isn’t what you think
The first aspect of efficiently managing your finances is staying on prime of invoices. Always, continually invoice your purchasers on time; sure it will involve some extra work however you won’t get paid if don’t invoice your purchasers. If you want to be paid regularly then you have to make sure that the business incorporates a healthy income and having a healthy income is a method to avoid your business faltering.
To make the task of invoicing easier create a customary email reminder for due invoices; this is so because if customers become aware that you invoice them regularly only then they will possibly pay on time.
How to care of your bills?
Make sure to always pay your bills on time just as you would like your customers to pay their invoices on time. This can develop healthy relationships with suppliers, which might prove to be valuable for a little business. It helps you to manage the business’s income status, however do not wait to be invoiced to record what you owe; keep track of all outstanding payments, whether or not you have received the bill. These tasks don’t take much time; just put an hour every week to make sure you are right on the point with the business accounts.
Managing your bank accounts
It doesn’t matter if you are using a software program for accounting or you are maintaining a log for records, it’s essential to just keep track of all banking transactions in order to recognize precisely what they are. In a growing business it’s not possible to recollect what every action was for, months down the road when your controller asks questions so make sure that you keep an updated record.
Even if you use regular suppliers and their name is enclosed as a reference in every group action that is not enough while not every payment being tied back to explicit things. It’s essential for cross-referencing to confirm you have managed your pay system properly.
This is necessary for you so that you will be able to perceive where your money goes to, which is able to facilitate in distinguishing the areas of the business that performs well and the people who perform badly however it’s absolutely necessary too to keep regular records in the event of a tax investigation or a dispute.
If you are wondering the basic idea for managing your small business accounts, here is the fundamentals that can be sound for understanding the working of any small business accounting.
Small Business Accounting
Small business accounting helps you track the money that flows in and out of your business accounts. It may also include all the sales, purchases, payments, and liabilities. Yes, you guessed that right, it is a massive topic, but for the small scale business, we can narrow the points to:
- Creation of the financial reports
- Filing tax returns
- Bookkeeping or recording the financial transactions
Well, putting it simply, accounting helps you to gauge the value and health of a company in order to make better decisions for the long-term success and also to track the benefits of the shorter term! We have enlisted the step by step procedure to make the process really simple for you.
How to set up a basic accounting cycle for your small business?
Opening a separate bank account
Yes, this is the first step to get your business accounts on track. Opening a dedicated bank account for separating your business finances from personal ones can be an excellent idea. You can have a savings account or a business checking account, and it will help you organize your revenue and allow you to plan for the taxes at the end of each year.
Recording all expenses and income
Till the time you do not know the actual figures for your company’s expense and saving aspects, you may not be able to understand the right accounting method for your small business. For that, you have to learn how to record and track business transactions. Indeed, it comprises as being a strong part of a strong small business bookkeeping system. All the source documents would help you monitor your deductible expenses, including the tax deductions, and prepare the financial statements and tax returns and effectively track your business growth.
Contextually, you need to note that you have to track the expenses that are pertaining directly to the business and not all!
Selecting the correct accounting method
Before you rest your sight ion the bookkeeping system, it is important for you to choose a method of accounting for your business. Yes, we have made that simple for you. There are two main methods that are used for recording accounting transactions. That is said to be categorized as a cash-based or accrual basis of accounting. If you choose the cash basis of accounting, you can easily record the income and expenses when you receive or pay cash.
With accrual accounting, you will be using the double-entry method of recording transactions. That means you will be making two entries for every transaction. You record expenses and income in this system, when you are incurred, regardless of the fact when the cash is exchanged.
Transactions to trial balance
When you are using the double-entry account system, all the transactions are recorded as journal entries. The journal lists these entries in a much easier way for you to understand. The list is organized in chronological order, and it also records the amounts which are credited or debited along with the transaction dates and the different aspects of current balances.
Creating an adjusted trial balance
If you are using the second method of accounting, that is the accrual system of accounting, adjusting the journal entries accounts for tracking the periodic income and expenses can be a good idea. You can reflect this situation in the container of a simple example; When the rent amount is paid for the entire year, a monthly adjusting entry should be made to recognize the expense incurred. This ensures that the expenses and the income are matched accurately during the period represented in the financial statements.
After you have made the adjusting entries, an adjusted trial balance is prepared to confirm that the debits and credits match the adjusting entries.
Reconciling and closing your books
Indeed, this is the last step for the small business accounting cycle. Here, the work is related to anything requiring the post-closing entries. This is mainly used to reset the balances of the temporary accounts. That is reset back to zero and restart the accounting cycle. The expense and income amounts must be closed here to record future transactions.
The bottom line
Indeed, for a small business account, you may feel that setting realistic expectations out of the income and expenses can be the best idea. Follow the above-said tips for understanding the importance of accounts for any small scale business!