As a small business owner, it is very important to know how the accounts of your business work. Good accounting can prove to be extremely beneficial for running a successful business. Thus, it is important to know a few tips for accounting of a small business.
The topics discussed in this article are:
- Importance of Good Accounting
- Accounting Tips for Small Business Owners
1. Importance of Good Accounting
A good accounting system is required for surviving every business. Accounting is inclusive of payroll records, cashbook, credit book, sales invoice, debit book, credit purchase book, vouchers of cash payment, asset records, bank transaction book, and stock book.
Good accounting is important because it:
- Helps in evaluating business performance by giving thorough review of financial performance.
- Helps in managing cash-flows and meeting deadlines by showing areas in business which require cash and showing when bills are due to be paid.
- Helps in setting new weekly, monthly, and yearly business goals by evaluating the business’ performance in comparison to previous years.
- Although the accounting tasks of a business can be outsourced to professional accountants or chartered accountants, it is important for a business owner to understand the basic working of business accounts.
2. Accounting Tips for Small Business Owners
The following accounting tips can help in good accounting of the small business:
- Book-keeping Frequency: Book-keeping may be the lowest priority for business owners who undertake business accounting themselves. If accounting is outsourced to a professional accountant, it is important to ensure that accounts are maintained on a regular basis. This will eliminate the issue of accounting work being piled-up and the chances of missing or forgetting important data will be reduced.
- Regular Accounts Reviewing: When outsourcing accounting to professionals, it is important to regularly review the business accounting books to understand its operational status. The functioning of the business will become clearer by doing this and it will become easier to find where there is scope for improvement and where resources allocation is required. Moreover, unscheduled reviewing of accounts also helps in ensuring proper maintenance of books at all times.
- Seasonal Cash Flow: Business owners should be aware of their annual and seasonal cash flows. Being informed about the ups and downs in the cash flows will provide a clear picture as to when it is the proper time to expand and consolidate. This will help in planning when to invest in promoting the already existing product and when to improve the product by adding new features to it.
- Accounting Checklist: It is important to understand basics of accounts while running a business. Sitting with your accountant or other professionals and understanding the basics is a good way to learn about accounting. Creating a checklist of the accounting essentials you want to familiarize with along with their corresponding numbers will help in getting a better understanding of accounting. This will help in obtaining a clearer picture of the business’ accounting structures.
- Tax Details: Every business owner should be aware of the tax amount their business pays.For sole proprietors the business taxes will be the owner’s personal taxes. Therefore, knowing the amount of tax paid will give a better understanding of the deductible expenses, types of taxes paid, and the rate at which these taxes are paid.Knowledge of annual taxes will clarify how advance taxes are to be filed and how many resources will have to be set aside for payment of these taxes.
For any beginner these accounting tips can prove to be of great help for strategizing a more planned and comprehensive business growth.