40% of small business owners feel that financial management is the most tedious aspect of running a business. However, accounting and bookkeeping services can add substantial value to your business. If you are setting up a business for the first time or are aspiring to optimize your accounting and bookkeeping practices, then here is a list of accounting best practices that you can implement in your organization:
Set up different bank accounts for personal and business use
Small business owners, especially the ones who run sole proprietorships, may end up using the same bank account for personal and business use. This may be fine if you are a small setup, however, you would find it difficult to track your personal and business-related transactions when you begin scaling up. Hence, it is highly recommended to set up different bank accounts for personal and business use.
Pro-tip – If one is setting up any entity other than a proprietary concern, then it’s compulsory to have a current account for business purposes. But in our opinion, we suggest that even for a proprietorship, it is advisable to open up a separate current account.
Regularly monitor your cash flow
Accomplished business owners would admit that managing your cash flow is the key to running a sustainable business. In simple words, cash flow helps you understand how cash is moving in and out of your organization. Cash is required to pay salaries, spend on business expenses, and taxes, purchase assets, and settle bank loans if any. By monitoring your cash flow, you would also be able to gauge whether clients are honouring the pre-defined payment cycles.
Pro tip – Review your cash flow statement twice a week with your accountant.
Consistently create back-ups of financial records
Nowadays most business owners and accounting firms maintain soft copies of financial records and use hard drives to store them. However, imagine a scenario if which the hard drive containing the financial records gets damaged. Your accountant would have to spend several hours recreating those records. To avoid such scenarios, keep uploading backups of your financial records on a secured cloud drive.
Pro tip – Shared the access to the cloud drive only with trustworthy individuals such as your accountant and business partner
Practice closing your books every month
Usually, business owners tend to begin closing their books towards the end of the financial year. However, quite often they may find it difficult to identify the purpose of certain accounting entries which were made earlier. Apart from this issue, the business owner would also lose precious hours or even a few days for cross-checking all entries along with the accountant. Most importantly, business owners would be able to accurately understand their business performance only at the end of the financial year and accordingly make decisions for the next fiscal year. Instead, business owners could practice closing their books at the end of every month. This would enable them to optimize their business performance on a monthly basis and thus grow at a faster clip.
Pro tip – Your accountant could use suitable software platforms to include entries on a daily basis.
Outsource accounting
If you are a small business owner, it might make sense for you to outsource accounting and bookkeeping. By outsourcing accounting services, you can avail the services of an accomplished accounting professional at an affordable fee which would be equivalent to or less than hiring an in-house resource with fewer years of experience.
Pro tip – Interact with multiple accounting firms before choosing the one which is most suitable for your business.
By following these accounting practices, you can take your business to the next level. Have any questions? Then feel free to reach out to us by clicking here.
