Unfortunately, most small businesses do not put enough emphasis on their accounting until something has gone terribly wrong. The realization that your bookkeeping has not been kept up-to-date usually happens a few days before taxes are due or even worse, when you notice charges on your bank account for a check bouncing. You can save yourself all of the stress and less minute updating by developing a successful accounting strategy upfront.
The first and most important part of your accounting strategy is to maintain accurate and detailed records at all times. Set yourself up for success by dedicating a specific time each week that you will devote strictly to updating your books. If you use online billing software for your accounting, it should only take 15 to 30 minutes per week to enter all of your transactions. These programs have easy entry blank cells on pre-designed templates, so there is no need for calculations or formatting.
If you need information mid-week, you can quickly enter the last few days’ worth of receipts and all of your reports will be accurate. The next strategy will involve a regular review of these reports, to make sure everything is on track. You should run your cash flow statement, your balance sheet, and your income statement quarterly (or more frequently) to ensure everything is on track. If you use an online billing software program, reports can be quickly run in a matter of minutes, so there is no reason you can’t review them regularly.
You will also be able to generate an account receivable report quickly, which is the next important aspect of your accounting strategy. There will be clients who take longer to pay then the agreed upon terms and it is crucial that you recognize the past due invoices as quickly as possible. Sometimes all it will take is a professional reminder notice to turn that receivable into working capital that you can use to pay your bills. A solid strategy for success involves reviewing your accounts receivable weekly and following up on anything that is past its due date.
The last crucial component to your strategy is planning for major expenses. If you are using all the income your company generates and you are not putting any aside for taxes or emergencies, you are setting yourself up to fail. Make sure you are keeping enough for your taxes in a separate account, as well as an extra 1% to 5% as a safety net. This way you will have the funds if something goes wrong or if there is an opportunity for growth.
Accounting for small businesses does not need to be complicated. If you take the right steps in the beginning, like maintaining your records, reviewing your financial reports, and putting a little extra aside, it will be much easier for you to stay on track.