Management of small business accounts involves extracting accurate financial information from business transactions by comprehensively recording all income and expenses. This is an important task to help small business owners track and manage their finances effectively, especially in the early days. Small business accounting not only provides an overview of a business’s past and current performance but also helps with bills and payroll.
Many of the world’s most successful business owners attribute their success in part to good bookkeeping. It reduces the cost of running a business by recording all expenses and receipts incurred by the company and minimizing unnecessary costs. On the other hand, good financial accounting reduces the likelihood of paying taxes on amounts not included in income. Below are the top five accounting tips for small businesses, explained in simple terms.
Tips for Managing Small Business Accounts
The top five accounting tips for managing small business accounts effectively are
1 – Planning
Financial and tax planning is the backbone of balancing the books of small business accounts. Regardless of their size, discrepancies between pricing and tax obligations can result in significant losses. In addition, financial planning anticipates future difficulties, adapts to immediate needs, and avoids a possible loss of control of the business, especially concerning cash flow and working capital.
In order to produce a good plan, you should consider the following points,
- Understand the needs of the business.
- Understand the company’s goals for the period.
- Consider the market in which the business operates.
- Analyze the company’s history and financial statements.
- Understand the company’s tax base and the costs associated with taxes and related expenses.
Simple planning is not enough. Once a plan has been formulated, it must be implemented. Once the project is in place, managers must make decisions based on the program’s implementation to achieve its objectives. Daily monitoring and analysis of financial transactions are therefore crucial.
2 – Tax Basis
An accurate understanding of one’s tax obligations is essential to meet the requirements and ensure the growth of the business. An alarming number of companies pay too much (or too little) tax due to a lack of proper tax management practices. Someone can easily avoid problems.
When discussing the tax environment, it is essential to remember that managers must also be aware of the tax benefits available, understand tax billing and transfer techniques, and keep abreast of changes in tax legislation. They will help you avoid losses and save you competitiveness in the marketplace.
3 – Working capital
it is a small amount of money to keep the business running and viable in the early years. This is not the money you invest in starting your business but the amount of money you need to keep your business running before it becomes profitable. This amount will vary depending on the size of the business, the industry in which it operates, and the company’s seasonality.
- However, in accounting terms, it can be defined as the difference between short-term liabilities (e.g., payments to suppliers, salaries, taxes) and short-term revenues (e.g., cash on hand, short-term investments, sales), without working capital, the probability of bankruptcy increases.
- For example, you may face difficulties with unexpected sales declines, defaults, debt buildup, or possible closure before the due date. Not to mention missed opportunities. Lack of these funds can result in the loss of profitable investment and the loss of a business’s competitive edge.
4 – Cash Flow
Cash flow is the lungs of your business and may or may not give you the rest you need to make better decisions in times of crisis. It shows the financial movements of your small business accounts and can predict future revenues and expenses. Among other things, you can use it to
- Do you know whether you will have a deficit or a surplus in the future?
- Do you have an obligation or loss or know that you will have a deficiency or loss in the future?
- Moreover, Do you negotiate terms with suppliers?
- Take out loans or make investments?
But how do you control cash flow? First, decide on a period to monitor and gather all of the company’s balances and available funds. That will be the starting point; record all expenses, payments, and credits, and update the data as it comes in. The daily rush can be a major pitfall for the financial health of your business. By updating your data, you can better manage and forecast your expenses.
5 – Don’t mix company and personal accounts
The practice of business owners mixing accounts is hazardous to the financial health of small business accounts. Not to mention the risk of being caught by the IRS. Advances and other balloon withdrawals can be problematic if not properly documented. The IRS is increasingly tightening its controls over CPF and CNPJ transactions.
- Remember the concept of work per job, which is a fixed amount that the business, like any other employee, must deduct.
- This will prevent withdrawing money from the company account due to unexpected withdrawals.
- The second solution is profit-sharing, which could be quarterly, quarterly, semi-annually, or annually.
- Ideally, once a year.
- This is because profits, like losses, can be cyclical. For example, if one quarter is profitable. But the next quarter is lossy, and shareholders reverse some of the profit, liquidity, and cash flow issues may arise.
- Simulations can be performed to show the economics of the transition to digital accounting.
Author Bio
Villie Walters Ramirez is a 32-year-old tax consultant New York at a tax king who enjoys accounting and bookkeeping. She has a post-graduate degree in accounting, and she has a severe phobia of cats. She enjoys travelling A lot.
