Accounting is an essential component of any business operation, no matter how small the business may be. Given its importance, it also can’t be denied that accounting can impact the success and growth of your business.
Good accounting practice can help it soar to greater heights, while a poor one will set you off to a bad start. This is only the beginning of the many reasons why proper accounting practices should be the goal of every business.
Luckily, the development of accounting and bookkeeping software and automated tools like this one from https://www.indinero.com/services/online-accounting-services have helped contribute positively to business accounting practices. However, this isn’t to say that full reliance should be placed on that accounting software. This fact doesn’t make it any less important to ensure everything regarding your accounting practices is properly set up right from the beginning.
Every small business certainly needs to learn and master some of the most basic accounting processes to ensure strong financial stability for their business. Many techniques can help you get started with this, beginning with:
Get A Business Bank Account
This first tip may seem like quite an immediately apparent one, but its importance still can’t be underscored enough. Regardless of how obvious this may be, it can still be a common mistake made by many startups not to open a business bank account just yet. There can be that notion that such isn’t actually necessary, especially given how small and limited the transactions may be.
This notion isn’t necessarily good practice. It’ll only be more confusing and challenging for your accounting team to employ good accounting practices if a small business’s personal and business finances aren’t separate. Mixing those two can easily lead to mishandling of money or overspending, among many drastic effects.
With that, no matter how small your business may be, it’s always a prudent practice to open a business bank account. Growth is the goal, after all. And, when you’ve finally achieved that desired growth, it’ll be a lot easier for you to track your business’ finances when you already have everything separate in that specific business bank account.
Get Accounting Software
Accountants today rejoice in the fact that there is accounting software that can help make them more efficient and effective at their job. That software isn’t meant to replace human accountants. Rather, they’re to be used for the purpose of supplementing the skills and expertise of the accountants.
Sit down with your chosen accounting team, and open up the prospect of getting accounting software. Let your accountants help you decide. With their voice, you can be certain that the accounting software you’re signing up for is exactly what you need. Otherwise, you may wind up wasting money paying for accounting software that won’t even do your business any good.
Choose Your Preferred Entry System
Small business accounting requires you to choose between two types of entry systems: single-entry and double-entry accounting. Here’s the distinction between both:
- Single-Entry Accounting
This refers to that process where you’ll record all of your transactions at once, either as an income or an expense. This is more suitable for small businesses that don’t have to deal with quite a significant inventory level, as it’s a more straightforward accounting method.
- Double-Entry Accounting
This is a more complicated accounting process in which each transaction is recorded twice on the financial statements, once as a debit and once as a credit.
That way, the accountant can ‘balance the books’ between the accounts. While a more complicated process of accounting, it’s also one that is most effective in preventing errors while recording transactions.
Select An Accounting Method
Now that you’ve chosen a preferred entry system, you should then move forward with choosing an accounting method or the method of recording financial transactions. There are basically two modes you can choose from:
- Cash Basis
Under this type of accounting, each transaction is recorded when the cash transactions are done. For example, you only record a certain item as revenue when you already receive cash payment for that particular item.
- Accrual Basis
On the other hand, the accrual basis works this way: you record income when you make a sale, and you enter expenses when you incur them. Those records are irrespective of whether or not you received or paid cash for that particular service or product.
Keep Accurate Business Records
Whichever type of accounting method you use, the most important tip for you to remember is to keep an accurate record of all the business transactions you’ll have. One small mistake can lead to inaccurate financial statements, and that’s not what you’ll want to have for your business.
It can significantly help make the job of your accountants easier when every single business transaction is properly recorded and can be substantiated at that. For example, you have receipts for every sale made, and for all expenses paid. You can look back on those receipts should there be any dispute between your financial records.
Conclusion
Accounting for small businesses is undoubtedly one of the simplest modes of accounting a company can do. After all, there’s only so very little that needs to be recorded. You can start with the basics of listing all inflow and then deducting from that the outflow or the expenses.
Despite this, it’s not enough to say that small businesses can take the startup phase so lightly. Accounting can still be complicated, no matter how straightforward. And, if you’re finding it hard even to begin, the tips above should be more than enough to guide you through a better and more positive start.
