The success of a business heavily hinges upon accounting. So it is because accounting gives business owners a feel for the financial pulse. Among other things, it enables them to devise a proper budget, track costs, and identify expansion opportunities.
However, to reap these benefits, you need a well-thought-out accounting strategy. Though a company’s blueprint might vary depending on its size, sector, and objectives, experts recommend sticking to the following universally-acknowledged accounting practices:
1. Leverage Technology
Accounting software allows modern businesses to automate the most mundane, time-consuming accounting tasks. You can use them to keep tabs on your finances, manage payroll and invoices, control inventory, stay compliant, and so on. Besides, you can access all the information through a single centralized location.
The best part is that most software is hosted in the cloud. As a result, you can use it from anywhere to view data and make changes. Automation also helps reduce human errors that occasionally lead to inaccurate accounting.
Before investing in accounting software, define your requirements. For example, if you want to stay on top of the new ASC 842 lease accounting standard, buying lease accounting software for ASC 842 compliance will make perfect sense. Reading customer reviews is an excellent way to narrow down a long list of potential solutions. Some companies also allow you to try the software for free before fully committing.
2. Keep Personal And Business Finances Separate
Mixing personal and business finances is never a good idea. It can cause a lot of hassle during the tax season. However, business owners must have accurate records of their expenditures when filing taxes. Every receipt matters in office expenses, business operations, or inventory purchases. With a comprehensive collection of business-only information, you can submit your taxes (or give everything to your accountant) more quickly and easily. Besides, you are also more likely to take advantage of tax deductions.
Business credit is another major takeaway for keeping your personal and business finances separate. At some point, getting your hands on operating capital will be critical to your business expansion, and establishing some business credit will be necessary for securing larger business loans. Unfortunately, blending personal and corporate finances makes it harder to separate the two when applying for business loans and securing business credit from financial institutions.
3. Keep Good Records
It is crucial to prioritize record keeping because it is hands down one of the best predictors of future financial success. Unfortunately, the more time passes between transactions, the more challenging accounting becomes. As a result, you are less likely to remember the purpose of each transaction, which means you could overlook substantial tax deductions or underpay your taxes.
If you commit to regularly keeping your books up to date, it will just need a few minutes here and there instead of hours or days.
4. Lay Down A Budget
Creating a budget is often considered the most tedious business aspect. But it is a tried-and-true way to streamline your accounting. Budgeting involves diving into the past to see how things were going financially and then using that data to make sound decisions for the coming months and years.
Having a budget makes it easier to track where your money is going and identify areas where you need to reduce spending. So, in the long term, it might end up helping you save money.
Remember that your budget is variable and will require some tweaking to account for the ebb and flow of your company’s revenue and expenses. In addition, since seasonal trends have an inherent impact on financial and operational effectiveness, understanding the company’s cyclical nature requires time. Therefore, for efficient accounting, entrepreneurs must monitor their budgets and make necessary adjustments over time.
5. Consider Outsourcing
Kudos to you if your company has expanded! Now investing in professional bookkeeping or accounting services may be a worthwhile venture. Hiring experts can be a terrific way to increase your productivity and free up time to focus on the things you enjoy doing. Although you may hire someone else to manage your finances, you should still be involved in the accounting process and aware of what is happening with the core statistics.
When hiring an accountant, be sure to evaluate competency and compatibility. Ask potential applicants how they would respond to certain scenarios that are important to you. How would you respond, for instance, if the IRS called to verify your car-related expenditures? Take in the information and evaluate if the proposed course of action is one you would approve.
You cannot just wake up one day knowing everything there is to know about accounting. Since accounting is a complex domain, it is crucial to keep educating yourself and gradually learning things along the way. If accounting takes a toll on you, you can always rely on this piece to guide you.