5 Accounting Tips to Help You Keep Your Books in Order
by Sumona Finance 15 January 2022
While the language of accounting professionals can sound intimidating, accounting is essential to the success of any business. By keeping your books balanced, you’ll be able to better understand the past financial performance of your company and build a foundation to make smart forecasting decisions to grow your business.
The good news is, accounting process isn’t so difficult if you break it down into several simple steps. In this post, we’re outlining those steps and explaining everything you need to know to get started with maintaining balanced books.
1. Consider Hiring Professionals
Many business owners think that by doing their taxes themselves will save money. However, since accounting can be really overwhelming, not hiring a professional with suitable expertise can actually cost your business lots of money down the road.
That’s why you should consider working with professionals like accountants, bookkeepers, tax professionals, or a CPA firm. CPA stands for Certified Public Accountant and CPA firms can offer a variety of services to assist you in keeping track of your company’s finances.
These accountants conduct audits, create budget reports, provide consultation services and analyze financial records to prepare tax returns. A CPA will make sure your financial records comply with local, state, and federal laws and regulations.
When you hire professionals to manage your books, it’s important to maintain clear communication with them and let them know if you don’t understand the terms they’re using. You need to view your tax professional or accountant as part of your team and be sure that they’re giving you tips you can bank on.
2. Create Cash Flow Statements
If you are still determined to keep your books balanced on your own, then education is the most important thing. In order to be able to manage the numbers, your first need to make sure you understand them.
Consider creating cash flow statements as you perform weekly and monthly financial reviews. These statements will help you to better understand cash movement both inside and outside of your organization. Since cash flow statements basically monitor income direction, they’ll enable you to plan expenses and allocate your income more appropriately.
3. Separate Your Business and Personal Accounts
Many entrepreneurs decide to use part of their personal funds in order to keep the business running in the initial stage. However, utilizing your personal finances for business purposes could be problematic, as you could easily overlook important business transactions.
Distinguishing your business and personal accounts will make it easier for you and your bookkeeper or accountant to keep track of your money and expenses.
When it comes to separating your personal and business finances, it might simply mean setting up two different checking accounts and credit cards and making sure that only your business account is used for expenses related to your company.
It’s best to rely on credit cards for business transactions as they provide statements for an easy, automatic way to keep track of your expenses. Avoid cash payments as they can be easily overlooked. Any overlooked payments in cash can result in inaccurate cash flow statements and, as a result, poor business forecasting.
4. Keep Up With Receivables
Although getting paid is the best part of being a business owner, managing receivables is much less fun. Whenever you issue an invoice, you log that a client owes you money, i.e. you record a receivable.
When the client pays, the amount should be marked as paid. The problem is, when you have a large number of customers and/or orders, you might be too busy to reconcile the deposits immediately.
However, allowing your receivables to pile up might put you in a situation where you are overwhelmed when tax season comes with a large number of customer deposits to reconcile or no payment. Keeping up with customer payments and recording them on a monthly basis can save you time, money, and hassle in the long run.
5. Record Expense Receipts
Every business owner needs to keep track of the expenses related to their company. This way, the expenses can be subtracted from the total income at tax time.
Recording all your expense receipts will also provide a more accurate picture of your profitability for the year. Again, be sure not to overlook past expenses paid for in cash. If this happens, remember to ask for receipts from your vendors or log the expense right away.
Whether you choose to keep your books balanced on your own or decide to work with professionals, understanding how the process works is an absolute must. Even if accounting is not in your job description, healthy financial management of your business is essential for your company’s profitability and success.