Accounting is critical to the success of any company. Accurate recordkeeping is essential for tracking business spending and identifying new growth opportunities. It ensures that business owners stay accountable to the government and shareholders.
However, there are several factors to consider when it comes to bookkeeping and accounting for business purposes, and with employees and customers counting on you, the stakes are much higher. Accounting service providers can offer small business owners a wealth of information.
Don’t be caught off guard by your firm’s financial status. Use the following best practices to get your small business accounting uk on the right track.
What does accounting mean?
Accounting is recording, measuring, evaluating, and reporting financial information.
Accurate accounting includes financial transactions, income, spending, inventory costs, assets, loans, and other vital financial numbers.
Is an accountant necessary for small businesses?
Without an accountant, very few businesses will succeed. However, these enterprises are in the minority, and your chances of success without an accountant will depend on your existing business experience and a strong knowledge of finance and taxes.
Small business accountants give you a competitive advantage over your competitors. Even if you are a savvy businessperson, an external accountant can help you uncover your blind spots and avoid financial blunders while concentrating on other company aspects.
A company that develops quickly without the proper scaffolding, or grows in the wrong direction, is much more likely to collapse. Thus correct accounting is critical for small business growth.
Best practices for Small Business Accounting
1. Decide on an accounting method and stick to it
There are two accounting methods, and it’s critical to understand these two strategies and stick to one of them.
Accrual Method: This process requires entering transactions into the books as soon as they occur. Likewise, expenses are recognised and recorded when incurred or when an invoice is received.
Cash Method: The cash method is the most basic kind of accounting. In this case, when cash is received, you record revenue. Likewise, you record expenses when transactions are paid.
The type of business you have determines the accounting approach you should use. Both strategies have benefits. Cash accounting gives you a clear picture of your cash flow and is especially useful for small firms.
The accrual technique is preferred because it provides more realistic and accurate financial information. Compare the two approaches and understand the differences before deciding on one for your business. It will help you find the best fit for you.
2. Keep your personal and business finances separate
Why should you keep personal and business finances separate?
- You and your business are distinct legal persons responsible for their own taxes, debts, and actions from a legal perspective.
- As a company director, your responsibility is to use company funds for business purposes only.
- Using company money for personal purposes can attract unwarranted tax liabilities.
- When it comes to filing tax returns, it increases the risk of missing out on business expenses or overclaiming- both will cost your business money.
The first thing you do after setting up your business- sole trader, company or partnership, is to set up a separate business bank account.
Secondly, make all business transactions from the business bank account and personal from your personal bank account. Never mix these.
Lastly, if circumstances are such that you need to use personal money for business, keep a record of such expenses or funds.
3. Set up regular times for bookkeeping
It’s tempting to continue to put off your bookkeeping with everything else you’re handling as a small-business owner. After all, you’re in business because you’re good at what you do, not because you like doing bookkeeping (unless, of course, you offer financial services).
However, the most accessible approach to staying on top of your finances is to set aside regular times to balance your records. Setting aside a block of time whenever your credit card statement is due and going over that month’s transactions to ensure accuracy is a simple routine. It should take an hour or two, making your life easier come tax season.
4. Automated invoicing
To maintain a good cash flow in your organisation, you need timely payments from your clients. Automating your invoicing process is one approach to boosting your business finances.
You can create recurring invoices in online software for clients that place the same orders every month. After filing the customer’s name into an invoice template, the invoicing application will automatically fill in the customer’s name, address, and email address. Based on the customer’s previous order, the template will input products and services.
Once the template loads, double-check that the customer information is correct and make any necessary changes to the invoice’s items and amounts.
Tracking all applicable taxes is one of the most challenging components of business accounting. Your state’s sales tax is almost certainly required if you sell goods.
Additional taxes such as business and payroll taxes are just a few examples of what is required to comply with legal regulations.
Corporate taxes can eat up a small business’s income, but there are ways to manage taxes efficiently. Conservative investment strategies enable you to report income accurately while maximising earnings and paying your due share of taxes.
You may wish to engage an experienced business accountant to help you understand tax loopholes and legal strategies to enhance your earnings.
6. Make financial projections
Even if your business is profitable today, we want to keep things moving forward.
Financial forecasts and reports can assist you in predicting where your company will be next year or even two or three years from now.
Financial forecasts can help you decide where to put your company’s profits and whether or not you’ll need to take out a business loan. Considering how expenditure may fluctuate due to natural forces (such as inflation) and client decisions is challenging.
The same is valid for income, where you’ll need to account for pricing increases and the number of clients you’ll get each year from marketing. The most accessible approach to making accurate financial estimates is to sit down with your accountant or use accounting software.
7. Seek professional help
Every growing firm reaches a point where the owner can no longer be in charge of documenting and managing the company’s finances.
Accounting becomes more complex, challenging, and time-consuming as a company grows. You will eventually require the assistance of a professional accountant whose primary responsibility is to record, organise, and evaluate your company’s financial integrity.
A professional accountant can help you save time and money by improving your bookkeeping accuracy. They can assist your business in achieving financial stability while also giving a plethora of information on fees, loopholes, and tax deductions.
You don’t have to hire a full-time or in-house accountant. Instead, you can outsource these tasks to a team that can customise their solution to your needs. Do you need the guidance of an accountant for three days every month? Need an accountant to call upon at will? You can easily outsource.
Advantages of Outsourced accounting
There’s no need to hire an in-house workforce full-time — It is expensive to hire a full-time employee. Hiring, onboarding, training, wage, and benefits are all expenses. You can recruit someone who can come in and start working right away without incurring any additional fees via outsourcing. You can also utilise them as needed rather than paying them all year.
Professional assistance – Third-party accounting firms bring a plethora of knowledge and experience. They’ve probably worked with companies in similar situations to yours before. This knowledge can assist them in guiding you down the correct financial route.
Create operational efficiencies – When you don’t have to worry about bookkeeping, you can focus on growing your business. Outsourcing your accounting allows your company to streamline its processes.
Successful business owners strive to enhance their businesses regularly. Use these suggestions to reduce errors, save time, and streamline your operations.
Small firms can boost their chances of success by establishing effective accounting practices. According to studies, the more often a small firm examines its financial figures, the better its financial health will be, which will lead to long-term success.