Most start-ups fail within the first few years. One of the many reasons for this failure is that small business owners do not know how to manage their expenses properly. Dwindling consumer confidence, layoffs, and foreclosures are only the tip of the iceberg. However, there is a ray of hope at the end of this nightmare.
A successful business requires a positive cash flow to sustain it. However, managing the expenses, profits, and debt is no child’s play. Therefore, business owners must hone their accounting skills to keep their ventures afloat. But, acquiring these skills takes time, effort, and determination.
Fortunately, there are 12 tips you can follow to improve your business.
- Embrace technology: There is no doubt that technology is here to stay. In the old days, employers considered software skills as an added skill. But now, everyone has to be technologically adept. Therefore, business owners should know how to use software and business tools. Most of these applications work on the cloud. So, entrepreneurs should know how to use accounting software. New tech does not just make fewer mistakes, but it also frees up precious time for professionals to focus on other things.
- Get a degree in accountancy: Accountancy is not just about spreadsheets and ledgers. However, business owners must be able to decipher the real picture behind the numbers. Therefore, a degree in accountancy can help business owners acquire valuable skills related to the field. It helps business owners contribute to strategic decisions and in keeping track of routine processes. You might be a science major or an art major. But, the good news is that you can also get an accounting degree. Several educational institutes and platforms offer masters in accounting for non accounting majors to help individuals upskill and increase their knowledge of the subject. You can even choose to study online if you feel you’re too old to go back to campus.
- Analyze the data: Accounting skills help entrepreneurs make predictions and understand trends. They provide innovative solutions for emerging issues. Luckily, several accounting tools on the market can help you create a financial report. These reports can help anticipate future needs and plan for them. Therefore, business owners can budget for unexpected costs and new hires. Forecasting your expenses can help you use your assets and plan for any milestones on the way.
- Focus on receivables: Just getting paid for your products or services is not enough. However, you have to keep track of how much each customer owes you. You can check the listing to see if the customer has paid you for products or not. Furthermore, add the amount to the spreadsheet whenever a customer pays you. Do not delay any payments to the last day because that will leave you with customer deposits in tax season. Therefore, you will waste all your time sorting out your annual tax. Always keep track of all transactions when they happen.
- Monitor your cash flow: Small businesses often fail because of a negative cash flow. Therefore, business owners must understand the numbers on their financial reports. A cash flow statement helps you understand the movement of cash through your business. It also monitors the direction of the money and helps you identify payment cycles. Cash flow statements can also help you plan your income. Furthermore, you can use QuickBooks to visualize cash movements.
- Log expenses: Business owners should keep track of bills to help them during tax season. Therefore, entrepreneurs should save slips for every purchase. You can keep track of expenses by using credit cards for all payments. Appoint a designated location for receipts in your office. You can even take pictures of your checks on your phone to save the hassle when you file your taxes.
- Categorize your expenses: Deciding what items fall under business expenses is challenging. Usually, business expenses fall within three categories: travel expenses, home office expenses or entertainment, and gift expenses. People who frequently travel for work can claim the money they spent on tickets. They can also write off gas expenses when they travel via cars by looking at the odometer. Furthermore, home-based businesses can claim any money they spend on buying computers or office supplies. Sometimes, business owners have to spend money on business prospects. They can claim the money they spend on entertainment, meals, or gifts for new business ventures. Categorizing your expenses can make tax season painless. So, ask your employees to save receipts.
- Choose an accounting method: Every business owner has to decide which accounting method works for them. Your accounting method will help you understand how to log your income and expenses. Small businesses should opt for cash basis accounting. This method is straightforward. Owners can record revenue when they receive payment. They can deduct expenses when they take money out of the company account. On the other hand, retail businesses should choose accrual accounting because companies identify deals when they ship the product. Therefore, it may take weeks for owners to receive money for sales.
- Cash expenses: We often forget about cash amounts. However, these costs can make a difference to your bottom line. Therefore, business owners have to keep an eye on their expenses. The cash amount can help you get a better picture of the profitability. So, log all payments in your logbook whenever you spend money.
- Understand the difference between receipt and invoices: Many people think that invoices and bills are the same. However, they are wrong. Mixing both things can make everything complicated for entrepreneurs. They will find it impossible to balance their books and keep track of their debts. An invoice is a bill a company sends to customers mentioning payment due for services and products. On the other hand, a receipt is proof of a transaction.
- Separate your private and business accounts: Small business owners use their funds for their company. While occasionally using your account is not wrong, it can become troublesome. A separate business account can help you see where and how you spend money for your firm. It helps you identify significant transactions and helps manage cash flow. Things can get out of hand when you use your business profits for personal expenses. Therefore, use your business accounts for the money you spend on your company. Use your credit cards for all costs to stay on top of everything.
- Keep track of high-cost expenses: Some costs can surprise business owners. According to financial experts, small companies spend most of their revenue on labor and inventory costs. Therefore, business owners can outsource their work to contractors with hourly rates. Furthermore, inventory software can make the process more efficient and cut down expenses. This software can make it easier to predict demands by adjusting numbers as owners make sales. Owners must balance the cost of sold goods with the value of inventory.
Bonus tip
Seek out a professional
While some people save money by doing their taxes themselves, you can always talk to a professional about your accounting issues. Accountants can help you identify tax deductions and avoid penalties. They will use their expertise to keep you up to date on evolving laws and tax hikes. However, maintain clear communication with your bookkeeper. Inform them about your plans for your business to make better decisions. Sometimes professionals use confusing language that you may not understand. Ask them to explain their terminology when that happens. Remember that the accountant is a part of your team. So, keep them in the loop to avoid nasty surprises.
How can better accounting save your business during a crisis?
Business owners must understand that the world is going through a crisis. Therefore, they must redouble efforts to save their business. Entrepreneurs should be ready to make timely decisions to handle loss and utilize their resources. Business models that do not generate revenue have no future. However, it is necessary to act quickly. Entrepreneurs must identify fundamental issues and introduce innovative solutions.
Conclusion
Knowing how to balance the books and keeping track of your accounts is vital for every business owner. Not only do the accounts help entrepreneurs understand how their business is doing, but it also provides valuable information about the future. However, not everyone is an expert at managing books. Business owners can follow some bookkeeping tips to improve their accountancy skills and ensure their venture thrives.