5 Tips for Small Businesses to Get Their Accounting in Order
Startup entrepreneurs want to be in control of everything. For the most part, that’s an admirable goal for a business owner. For many, however, their strengths lie in innovating, producing or marketing. Accounting is a critical component of any business, but it’s an afterthought for many companies. Here are some good tips to get started and keep it relatively simple.
Consider Hiring a Bookkeeper or Investing in Accounting Software
If you have the budget, hiring a full or even part-time accountant may be extremely helpful. They’ll be highly trained and efficient with accounting practices and may have some very helpful recommendations. If you can’t afford additional staff, invest in accounting software which will at least help you stay organized.
Separate Borrowed Money and Payments from Accounts Receivable
Whether you’re doing the books by hand or using the software, it’s very important to know which bucket your money has come from, and which bucket your money belongs in. In other words, don’t lump all your funds together in one account without a detailed accounting of what is what. You have likely borrowed startup dollars from a lending source. Don’t mix that money in with revenue that comes if from accounts receivable.
Collect from Clients
The collection is another area that isn’t necessarily an entrepreneur’s strongest suit. That doesn’t change the fact that profit isn’t profited until the client has paid their invoices. Do not allow your customers to be delinquent with payment. If they are placing ongoing orders, insist on being paid before continuing service. Do not allow yourself to be taken advantage of.
Keep Track of Expenses to Help Budget
The last two tips involve some calculation that will pay off in the long run if you get into the good habit of starting them early in the life of your businesses. Keeping a daily expense log for a few months is a good accounting practice. It will help you see trends over time of which days and times of month your spending is increased. This can help you budget. Pay bills when you know you have cash-on-hand, and tighten up when you know you must spend money.
Identify Your Minimum Monthly Profit
Lastly, you should take your early revenue and expense information to calculate your minimum monthly profit. By knowing how much money you need to make to turn a profit each month, you will be able to set sales goals and plan.
Smart business leaders understand and value the importance of good bookkeeping!
