One very essential function of a business (regardless of its type and size) is accounting. For small businesses, however, the management of finances and the maintenance of accurate records can often be a struggle. Thankfully, there are certain accounting practices that business owners can adopt to improve financial management and ensure the success of their small businesses. Below are some of those best accounting practices.
Keeping Accurate Records
The first step to ensuring effective financial management in your small business is to keep accurate records of all business transactions like; expenses, sales, and payments. You can automate this process and make things even easier by making use of accounting software.
Establishing Internal Controls
This is an accounting practice that can help your small business avoid errors and prevent fraud. It involves procedures or processes put in place to ensure the accuracy and reliability of financial information. With internal controls put in place, legal and regulatory compliance is maintained, and assets are also safeguarded.
Examples of internal controls your small business can establish include; segregation of duties to ensure that no one person has too much control over financial transactions, clear approval procedures to prevent fraudulent and unauthorised transactions, physical controls for safeguarding assets, training, and education on procedures and financial policies, and regular monitoring (audits, reconciling accounts, reviewing bank statements) from detecting fraud or errors.
Hiring a Professional
As much as you would like to save money by handling your business finances yourself, things can get complicated very quickly, and you may not have the knowledge, expertise, or time to manage your books effectively. This is why getting professional help is very important. Hiring a bookkeeper or a professional accountant epsom ensures that your small business keeps accurate records. Your taxes will also be filed in a timely manner, and you will have access to strategic financial planning and advice.
Separating Business and Personal Finances
It is not uncommon for small business owners to use their personal accounts for the management of their business finances. However, doing this makes the accurate tracking of revenue and expenses difficult. The best thing you can do for your small business is to open a separate business account that will be exclusively used for business transactions.
Tracking Employee Time
In order to get valuable insights into profitability, productivity, and compliance, one accounting practice you need to adopt for your small business is tracking employee time. This practice helps your business to effectively manage labour costs and ensure that invoicing and billing are accurate while also helping you make informed decisions about staffing levels and resources.
Tracking employee time can be easily done with many different tools and software, such as; timesheets, time clocks, and project management software.
Using Cloud-Based Accounting Software
The use of cloud-based accounting software has continued to increase among small businesses, with good reason. First, this software makes it easy for business owners to access financial information at any time and from anywhere. It also makes it easier for them to collaborate with their bookkeeper or accountant in real-time. Some popular cloud-based accounting software you can consider include; Xero, QuickBooks Online, and FreshBooks.
Monitoring Cash Flow
Small businesses need cash flow management in order to easily identify potential issues before they turn into serious problems. Monitor cash flow by regularly reviewing accounts payable and accounts receivable. You should also forecast future cash flow in order to ensure adequate cash reserves.
Regular Reconciliation of Accounts
This is an important accounting practice that helps small businesses ensure that all their accounts are free from errors. The process typically involves comparing the company’s financial records (bank statements) to its internal accounting records (accounting software, general ledger) in order to detect errors or discrepancies and take corrective measures.
Small businesses need to regularly reconcile their accounts in order to; ensure accuracy, prevent fraud, identify errors, comply with regulations and improve cash flow.
Tracking Inventory
Tracking inventory is very important if your small business sells physical products. In addition to helping you ensure accurate financial reporting, this accounting practice will also help you make informed decisions about pricing and purchasing.
Proper tracking of inventory also helps your small business to; avoid overstocking (or understocking), optimise inventory levels, manage cash flow, and improve compliance, productivity, and efficiency.
Conclusion
In order for a small business to achieve success, finances need to be managed effectively. Adopting the above best accounting practices is a surefire way for small business owners to improve financial management and grow their businesses.
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