Alongside the excitement of starting a new small business, it’s important to grips with some practicalities – in other words, you need to do your small business accounting 101. It’s certainly true that owning your own business comes with a lot of satisfaction and rewards, but there’s always a constantly growing to-do list – and some of these tasks are more exciting than others. However, once you’re familiar with the basics of business accounting, you can get these necessities out of the way confidently and quickly. Here, we run you through business accounting 101, including what you should do daily, weekly, and monthly, so you can be sure you have all bases covered. That way, you can get on with doing what you love – running your business.
Small business accounting 101 part #1: Daily
Your most important daily procedure should be reconciling your receipts. Keeping a paper trail for all transactions – whether they are incoming or outgoing – is essential. Remember, there is no expense too big or too small. If you’re having a coffee with a prospective client or filing an e-receipt from Facebook Ads, make sure you have a record. The reason this is so important is that these business expenses add up against tax deductions. In order to legitimately benefit from these expenses, you need to be sure you have proof. Without concrete evidence, you could be denied both deductible expenses and tax credits.
Furthermore, you need to make sure you have a system in place for filing these expenses. After all, time is money – so you want these records to be accessible. Whether it’s old school in and out trays or files on your computer, make sure your daily expenses are organized. This is especially the case when it comes to emails, which can get particularly chaotic. Set up a separate folder in your email client for receipts or download all your attachments into Google Drive. That way, when it comes round to tax season, you can be sure all your expenses are kosher.
Small business accounting 101 part #2: Weekly
The key to effective accounting and bookkeeping for small business is to not let it take up too much of your time. Therefore, it is important to stay on top of your weekly tasks. The two essentials are cash flow and variable expenses. This is especially the case when starting a small business. Many new entrepreneurs assume that cash flow is simply a question of deducting expenses from revenue. However, it is rarely that simple; often, the money you have coming in won’t just be sitting there. Frequently, it’ll be caught in the ether between unpaid invoices and upcoming expenses. Therefore, you need to make sure you properly manage your cash flow. That way, you can cover your costs in a timely manner keeping contractors and clients happy.
Consequently, you’ll need to make strategic decisions about financing a business purchase. As such, you need to have a strategy in place to handle cash flow. So instead of reviewing your expenses monthly, keep them in check weekly. That way, you can keep a close eye on variable expenses and make sure they’re in line with your actual income. For instance, you might have a budget for marketing; but in the age of social media, these costs might vary depending on your business objectives. By implementing a system and evaluating these costs weekly, you can make sure you make timely, agile decisions.
Small business accounting 101 part #3: Monthly
If you can afford an accountant, you should be in touch with them on a monthly basis. However, if you’re doing it yourself, you should allocate a portion of your schedule to accounting every month. Use this time to create a monthly snapshot of your finances, which will help you examine the big picture. During these sessions, you can look at your sales, your outgoings, your income, and your cash flow situation. From this point, you can monitor trends and refine your company growth strategy. A particularly important angle to consider is the value for money your business expenses represent. From this structured perspective, you can implement financial plans for new projects, marketing campaigns, or operational expansion and how they’ll impact your revenue and expenses.
Create a system that works for you
Whether you hire an accountant or do the bookkeeping yourself, understanding how money travels through your operation is crucial to good business. No two enterprises are the same, and while there might be some fundamental rules of accounting for your small business, your specific needs will be unique. Therefore, your bookkeeping system is likely to vary from other entrepreneurs. Identify information that is critical to your business, so you can streamline your processes. That way, you can make sure that your accounting system is as efficient as possible.
This is especially the case when you’re just starting out and likely doing DIY accounts. After all, knowledge is power – and with a firsthand, detailed understanding of your business accounts, you can make informed decisions about financial strategy and business development. Although there’s indisputably value in expert assistance, having a robust knowledge of your income, expenses, and cash flow are the most important areas of business management. Once you’ve got a handle on business accounting 101, you can start driving your business strategy towards a winning, profitable formula.