Accounting in an integral part of any successful business. But whilst bigger companies have legions of finance experts behind them, smaller business owners can often find themselves dealing with accounting responsibilities all by themselves. This doesn’t have to be some mammoth, unachievable task, however, and if you follow these six basic accounting practices, you’ll be in a position to handle whatever your business can throw at you.
Establish Separate Business Accounts
One of the biggest mistakes a small business owner can make is mixing business with pleasure — transactions that is. Having business expenses paid into and out of a personal account can cause an accounting nightmare for both you and the taxman. Worse still, if you miss anything you’ll technically be committing fraud if it ends up affecting your tax returns. An easy solution is to simply set up a separate business account. No mix up, no confusion, just easily identifiable business transactions.
Budget For Taxes
One problem I often see is small businesses assuming that all money they take in is theirs. However, this is simply not the case, as the taxman will soon be on your back. My advice is to make an educated guess at your annual income early on in the year, as this will allow you to identify roughly how much tax you will owe at the end of the year. I understand that being a small business income can fluctuate, but getting a ballpark idea of overall income allows you to save enough every month to pay off the taxman. If you avoid doing this, you are left with having to scrape together a lump sum to pay your taxes bills and if you save and discover you’ve saved too much, well, there’s a little bonus for you.
Get Some Dedicated Bookkeeping Software
The books aren’t actual books anymore. They are spreadsheets and databases stored on computers, easily accessible, adaptable, backup-able and understandable. While you can record your transactions anyway you like, it is highly advisable that you invest in dedicated bookkeeping software. These specially designed products help you organize your books effectively and are well worth getting for smooth financial operation.
Keep Your Receipts
Receipts and invoices can easily begin to pile up and get in the way. It can be tempting to simply record the transactions they represent in your books and throw them away, delete them (if they are electronic) or simply lose track of where they are.This is a big mistake. Even if the transaction was years ago, it is important you keep these invoices and receipts in an easy to access place. Why? because it’s all evidence. Evidence for the taxman, evidence for yourself when looking over your finances and records for customers in the event of disputes. The best idea is to keep all your records in one place, either stored on a computer or in a good old-fashioned filing cabinet. Whatever you decide on, make sure you regularly update it with all your receipts and you’ll always be prepared for any unforeseen problems.
Make Sure You Get Paid On Time
Operating a small business means you most likely have multiple clients and are dealing with a variety of projects. Therefore, it can be easy to get caught up in work and forget about one of its most vital processes: getting paid. This is actually a more common problem than you might think, but it is easily remedied by a simple monitoring system, whereby work done for a client is noted and as is when payment is received. At the end of the month you can refer back this system, be it a computer file, spreadsheet or a handwritten note and make sure all bills are settled. You should try and encourage early payment by offering a discount to clients who pay promptly.
Don’t Forget The Experts
Contacting an accounting service when you need support doesn’t mean you’ve been defeated, nor does it mean you have to add a new employee to your roster. There are plenty of contractors out there that can help you deal with complex or deep-rooted problems and it’s essential that you do. Accounting can get complicated and if you come up against a problem you just can’t solve the longer you wait around trying to sort it out the worse it might get.
Words by Russell Smith, a chartered accountant in Leeds, UK. Russell is an accounting expert with over a decade of experience running his own business, Russell Smith Chartered Accountants.