Various market, administrative, and planning factors may cause small businesses to fail, but accounting mistakes are up there as one of the most notorious culprits behind business failure in the modern world. Planning your finances and keeping an up-to-date record of all cash outflows and inflows can help you make better decisions and show the real direction of your business’s progress. Read on for five tips to enhance your bookkeeping habits and streamline your growth.
1. Focus on record accuracy
Keeping accurate records is often easier said than done. Once you get into management, you realize just how hard it is to account for every coin that has moved in and out of its accounts. If there are invoices, receipts, and sales documents lying everywhere, it means you need to hire a CPA firm or accounting expert to assist with bookkeeping tasks.
2. Know your tax deadlines
If you run a small limited liability company, you may be required to pay VAT, corporate tax, and PAYE quarterly. Each of these tax forms has a varying deadline that can lead to harsh penalties if not met. The best thing about working with a professional accountant is that they save you the hassle of identifying and managing your company’s tax obligations, including PAYE. All you need to do is find a reputable company to transfer the workload to and focus on increasing sales.
3. Use cloud-based accounting services
In this digital era, failing to use accounting software – whether you are doing it yourself or with the help of a CPA firm – can be detrimental to your bottom line and give competitors the edge on you.
The market offers some of the most sophisticated yet easy-to-use software and can help unify your company’s financial activities for easier assessment and interpretation. It may take a while to get the hang of such systems, but if chosen carefully, an accounting software program is bound to increase your accounting accuracy and save you tons of money in labor costs.
4. Separate your business and personal finances
Keeping business and personal finances in the same account is one of the most common mistakes made by small business owners. When all your finances are in one wallet, you are likely to spend on big-ticket purchases thinking you have money to splurge. Unknowingly, you may end up exhausting your personal money and eating into your business finances.
5. Brace for major and unforeseeable expenses
Equipment replacement and upgrades will always be required for any business expansion plans. Sometimes, you need to do it for compliance or for compatibility with new software. You should brace for these large capital expenses and plan ahead to avoid business-disrupting surprises. And just so you know, the Section 179 IRS provision lets business owners deduct up to $1 million of new equipment and property in their purchase year, instead of the conventional year-over-year depreciation plan. This means that big purchases may be a pain now, but they will prove beneficial in the long run.
6. Understand labor costs before hiring
If you are going to need assistance with running your business, know that those employees will need more than just wages at the end of every month. You will also be required to pay their payroll taxes and benefits.
These costs come way faster than many business owners project. Avoid putting yourself in a position where you are compelled to reduce compensation post-hire because you were too generous during employee recruitment.
7. Keep your records tidy
Clutter piling up on the desks and floor is inevitable when dealing with paperwork. However, while this is acceptable in your personal life, it can be a significant disadvantage in business and accounting. Being tidy makes it easy for you to find specific documents and papers, which saves you time and money. It can also serve as a selling point to customers who fancy promptness and efficiency.
8. Ensure customers pay balances
The receivables column can lull you into believing you’re making headway due to the high amount of sales you are making, but that shouldn’t count unless you have received the money. While there is nothing wrong with letting customers take materials and services on credit, letting them go without paying can hurt your bottom line and slow down your journey to financial success.
The corporate world is a harsh one for small business owners. The above accounting tips can help you curb finance-related mistakes that can cripple your infant venture. You can also check with an accounting expert if you need more professional advice.