According to the Small Business and Entrepreneurship Council, it’s estimated that firms with less than 20 people make up 89.4% of the workforce.
Those numbers are impressive, but can become confusing when you look at other statistics. Even though small businesses make up a sizable portion of the American economy, more and more close each day.
It’s estimated that 20% of business fail within their 1st year of operation, and that number will go up to 50% by the 5th year.
How can so many small businesses be failing? There are a number of reasons why businesses fail, but cash flow, money management, and accounting seem to be the biggest reasons why business fail.
Read on to learn the accounting advice your business will need to stay strong for years to come.
The Most Important Job
Accounting is an important part of businesses of every size, but it’s easy for accounting to become a low priority for small business owners.
Many assume that they can handle accounting on their own. Some may think that they can make accounting an extra duty for their secretary or assistant.
One of the best pieces of accounting advice a small business owner can get is that they should never treat it as an afterthought.
Accounting should always be handled by a professional, it’s too important to pass off to someone else.
Accounting can help you financially forecast months into the future. Accounting methods can alert you to potential future financial gaps. The right accounting insight could even help you save your business in case things get tough.
If you keep up with your accounting and listen to accounting advice from professionals, there’s no telling what benefits your business can have. If you can’t afford to bring on an accountant full time, there are plenty of outsourcing services you can use.
Essential Accounting Advice
Money is the lifeblood of any small business. If you want to see your small business thrive and grow, there are some things that you need to know about accounting and money in general.
Ready to learn some essential accounting advice? If you follow these tips and take these lessons to heart, your small business can be a money making machine in no time!
You Need A Business Bank Account
A lot of small business owners use some of their personal funds to keep things running for the first few months. There’s nothing wrong with dipping into personal funds, but using your personal bank account for business can be troublesome.
Having a business account makes it easy for you and an accountant to see how money is being spent. If you choose to use your personal account for business purposes, you could be overlooking important business transactions.
Having a separate bank account will make things much easier when you have to file for taxes.
You won’t have to worry about spending time sorting through business and personal transactions. You also won’t have to worry about giving business accountants access to personal information.
Having a separate bank account will also make business purchases simple. You won’t want to give an employee your personal bank information. Having a separate account makes business purchases easier for employees and for you.
Bookkeeping Is Essential
Bookkeeping requires more than remembering to save receipts at the end of a transaction. If there’s one piece of accounting advice everyone should follow, it’s that you’re going to need a bookkeeping system.
Even if you decided to hire someone to do accounting on a freelance basis, it’s still a good idea to use a software program you can access at any time. Quickbooks and Wave are very popular with business owners.
When you’re thinking about the bookkeeping system you want to use, think about accessibility. There are a lot of software programs available that can assign different permissions to different users.
Give employees limited access to the system so they can easily submit receipts for business expenses. Think about giving your secretary or assistant the ability to add and view receipts, but not the ability to balance books.
Regardless of how you decide to handle bookkeeping, make sure that everyone in the business is using the same method. If there’s one bit of accounting advice to take away from this post, it’s that consistency is important.
Track Expenses Diligently
Small business owners have a lot of expenses. Tracking expenses is important for accounting purposes, as well as for tax purposes.
Some of the everyday things you do could be written off as business expenses. You could receive money back for the miles you drove to work or the client lunch you just purchased!
People are always asking questions about where to draw the business expense when they ask for accounting advice. If you want to know what you should claim/expense, see if they fall into these categories:
- Out of town/Travel expenses: If you’ve had to travel for business, the money you’ve spent on a plane ticket should be claimed. If you spend a lot of time on the road, you could be writing off the miles on your car. along with gas expenses.
- Home office expenses: If you’ve spent money on a computer or other office supplies, you can write them off on your taxes.
- Entertainment and meals: If you paid for drinks with a client or a nice dinner, include that in your expense report.
- Gifts: These can be related to entertainment and meals, but not always. If you go to an event or meal with a business prospect, that would be entertainment and meals. If the prospect went on their own, that’s a gift.
Expense reports can make all of the difference during tax time. Make sure that your employees know the importance of saving receipts and itemizing expenses when they’re out.
Know The Difference Between Invoices and Receipts
Mixing up invoices and receipts is an all too common way for small business owners to mess up their books. A simple piece of accounting advice to follow is to know the difference between the two.
An invoice is a bill that’s sent to customers after they’ve received your services. Think of them as detailed bills that should outline everything the customer has received from your company.
An invoice reminds customers that they owe you money. They’re helpful for speeding up cash flow, keeping financial records, and ensuring that you’re getting paid.
A receipt is proof that a transaction happened. They’re what you give your customers after a transaction is complete.
Mixing up receipts and invoices can make accounting a nightmare. If you can’t tell what’s completed and what’s in progress, you’re going to run into a lot of trouble when you’re trying to balance your books.
Consider Payment Methods
There’s a reason why so many small business owners insist on getting paid in cash.
Processing payments costs money. Accepting credit card payments can cost your business money because you have to pay transaction fees. Even accepting checks can be problematic due to the amount of time it may take for payments to process.
When it comes to accounting advice you take, payment consideration should be higher up on the list. Businesses need to account for how they plan on accepting payments from customers because of time and fee constraints.
If you plan on accepting credit card payments, it’s smart to set aside a certain amount of money for processing fees each month. That way you’ll be prepared to handle whatever the fees cost.
Track Labor Costs
It’s rare for employees to cost as much as their contract states.
If you want a solid bit of accounting advice, make a sheet of how much every employee costs you each month. Take travel expenses, overtime and other costs into consideration.
Keeping track of employee expenses can help in areas that go beyond payment.
If you find that one employee is clocking a lot of overtime, you may find that it’s time to hire an additional person.
When you see that an employee is wracking up travel expenses, it may be time to invest in a business credit card that gives frequent flyer benefits.
We covered a lot of bits of accounting advice in this post, but there’s one overall tip that can help small business owners anywhere.
Regardless of what system or tracking method you decide on, diligence and consistency are key. Picking a system and sticking to it may be the most valuable piece of accounting advice you’ll ever get.
If you take the time to develop a system that works for your accounting needs, you can’t go wrong.
If you want more accounting advice, drop us a note so we can help your business get on the right financial track.