Regardless of your business size or industry, accounting is a critical function for decision making, cost planning and control, and measuring economic performance. It helps you stay in full control of your finances while minimising business tax (and other overheads). When you have too much on your plate, you’ll find it hard to do your own accounting. The extra pressure will make it difficult to manage other aspects of running the business. If you can’t handle the role yourself, get someone to help. Here are some pointers that’ll help you understand the essentials of bookkeeping and manage your operations smoothly.
- Separate Business and Personal Expenses
Keep your business assets separate from your personal finances. It doesn’t matter if you’re just starting out or re-evaluating your business structure. Treat your business like a distinct entity and open a dedicated bank account. You can collect receipts in this account and write checks for expenses. It’ll be easier to identify and subtract allowable expenses. If your personal costs and business costs are amalgamated, it can be challenging to make accurate calculations. Opening a dedicated bank account makes customers and suppliers feel safe and secure using your business. When choosing a banking service, take into account the interest rates, standing charges, transactional fees and charges, banking app, overseas payments, and technical support.
- Turn Your Attention to Receivables
The accounts receivable is the lifeblood of your business, as it helps gain a better understanding of the company’s overall financial stability and liquidity. Getting paid may be exciting, but managing receivables isn’t all fun and games. To improve accounts receivables management, follow these tips:
- Perform a customer credit check on potential or new customers
- Establish payment terms and be proactive about collecting payment
- Make it easy for customers to receive, view, and understand your invoices
- When customers pay on time, reward them by offering discounts on the next purchase
If there’s any delay in payment at the customer’s end, this can result in a cash flow shortage for the company.
- Create A Budget for Meeting Goals and Objectives
Successful businesses allocate time to create and manage budgets. Budgeting lets you see how the company is doing from a financial standpoint so that you can plan for short- and long-term expenses, new hires, or the cost of expanding business operations. Creating a budget involves generating projected revenue and expenditure. It outlines your organisation’s financial and operational goals and objectives, so it’s a kind of action plan. To create a business budget, you have to:
- Examine your revenue
- Subtract fixed costs (rent, supplies, debt repayment, payroll, taxes, and insurance)
- Figure out variable expenses, set aside a contingency fund to meet emergencies
- Create your profit and loss statement
- Outline your budget
A detailed, realistic budget will come in handy when it comes to securing financing from banks and investors.
- Understand The Difference Between Invoices and Receipts
Invoices and receipts serve different purposes, and they’re issued at different moments of the sales process. They may seem similar, yet there are some crucial distinctions you need to understand. An invoice is a document that’s submitted to the customer after they’ve received your products or services. It acts as an official request for payment. Types of invoices include a debit note, a bill of sale, a sales invoice, or a record created in electronic format. A receipt demonstrates that the transaction happened and can act as proof of ownership. It shows how much has been paid, as well as the payment method. An invoice is issued before the payment, while a receipt is issued after the payment.
- Decrease The Risk of Errors with Double-Entry Bookkeeping
In case you didn’t know, double-entry bookkeeping reduces errors, as it ensures the arithmetical accuracy of the recordings of financial transactions. It’s pretty straightforward. When you update your books, you account for both the profit and loss. Put simply, you monitor ingoing and outgoing cash. The debits and credits always balance out. You can manually create multiple ledger accounts. Nonetheless, if you want to make the switch to double-entry accounting, you’ll most likely want to use accounting software. Almost all modern solutions offer double-entry bookkeeping, so you’ll have accurate financial statements.
- Organise Your Chart of Accounts
If you want to have a clear picture of your business’s financial health, have multiple accounts. Needless to say, having a chart of accounts can be beneficial. A chart of accounts is basically an index of all the financial accounts within the company’s general ledger. Besides accounts receivable, the most important accounts to pay attention to are accounts payable, sales, purchases, payroll expenses, owner’s equity, and retained earnings. You can further divide the financial transactions made during a specific period into different subcategories. Here’s how to make sure your chart of accounts is sturdy:
- Create a logical numbering convention
- Use other dimensions to minimise the number of accounts
- Establish effective internal controls
A well-organised chart of accounts will allow you to make better decisions and follow financial reporting standards.
- Use Bookkeeping or Accounting Software
Technology makes life easier for business owners. Whether or not you hire a professional, get your hands on a robust cloud-based software solution. Bookkeeping software is centred around the basic components of financial management. Accounting software, on the other hand, carries out all the functions of bookkeeping together with more analytical and actionable accounting functions. You don’t need to be tech-savvy to use either one of them. With this technology, you can automate important activities. You’ll still need to provide the data, but the software will save you time and effort.
- Hire A Professional, Even If Temporarily
Finally, yet importantly, consider hiring an accountant, even just for a few hours per month. They’re in a better position to help you with Making Tax Digital. As the deadline arrives, you can’t continue working in the same way. The accountant acts on behalf of your business, so they can make submissions under the new regime, and if you’re ready to have an accountant submit your HMRC returns, talk to them as soon as possible.