These are tough times for most businesses. In addition to operational affairs, payroll management, inventory issues, etc., business owners also have to keep track of their financial records. Small business owners usually neglect this aspect either because they have surrounded themselves with other things, which leaves little time for it, or simply because they don't know how to do it properly.
While most business owners are aware of it, few do anything to tackle the problem. A neat and organized accounting record comes handy in many situations such as financial audits, investor pitches, partnership deals, etc. Whether it is financial illiteracy or lack of time management, with so much at stake in a business, creating a checklist and system of periodic accounting clean-up will go a long way in preventing unfortunate consequences.
Below are seven easy tips that will help keep ease the pressure of financial record-keeping on you.
1) Track your transactions as they happen.
One of the most common accounting problems is that audits and reviews happen when it is too late. An easy solution to this issue is to keep track of your expenses on the go. If you have a pre-set budget, tracking expenses will help you control expenditure within the budget. Tracking transactions also addresses another critical area - overspending. If you do not track where your money is going, you run the risk of either overspending or miscalculating while setting budgets.
2) Know where your cash flow position is in real-time.
Tracking and understanding your business's cash flow is extremely vital. A cash flow plan is not a peek into the future, it is a mere prediction based on several factors. Hence, it is important to know the status of your cash flow in real-time. It is hence advisable to extend payables while trying to improve incoming payments while keeping an eye on the market situation and fluctuations. Keeping an eye on the cash flow position will also help avoid a potential shortfall of capital as you can be aware of the cash flow status in real-time.
3) Document and allocate your expenses.
Every expenditure incurred should be documented and allocated. Keep track of any gaps in the documentation and allocation of expenses. Costs should be allocated based on distribution. Documentation is proof of the costs incurred to your business. Hence documenting and allocating expenses, and tallying them ensures compliance and less work in the long run.
4) Separate personal vs business income and expenses.
Separate personal and business accounts not only sort your accounting records but also gives you an insightful and informed look into your business's financial records. Tidier accounting records provide a more accurate financial statement for your business, which not only helps you while paying taxes but also in tracking deductible expenses. A separate record of your business income and expenses also helps while applying for loans, credit cards, etc.
5) Financial statements can be used as tools to make short term and long term business decisions and goals.
Through short-term goals such as cash flow management and cost containment and long-term goals such as annual tax planning and improving margins, business owners can focus on visible and tangible planning of expenses.
6) Plan for the future and prepare for any unforeseen emergency or natural disaster.
Business owners should plan to cover unexpected expenses due to unforeseen business emergencies, natural disasters, market losses, etc. Unexpected financial emergencies can be extremely stressful, and in the process to smoothen things, business owners may panic and amend financial records. To avoid this situation, your business must be guarded against hostile or conflicting situations. Planning for future emergencies also shows the organization's ability to adapt.
7) Hire an accounting professional to assist you
Hiring an accounting professional to make sure the company records are accurate and to help you make executive decisions is more than just outsourcing. A professional who brings a certain level of expertise will save you a lot of legal anomalies and disputes. Hiring a professional also saves time as you don't need to worry if the accounting records are in order and are being reviewed and filed in time. This allows you as an owner to dedicate more time to your business.
Issues related to accounting records can hurt businesses in the long run. Disorganized accounting records can make it difficult to track financial transactions during audits or year-end reviews. It is best to outsource your bookkeeping and accounting to a professional. At AAABSI, we have over five decades of experience working with small businesses on their financial statements, accounting, bookkeeping, cash flow analysis, etc.