Cash flow is crucial to the life of any small business, which makes keeping track of how you are spending your money especially important for small businesses and SMEs. This is where accounting comes in. Many business owners look at bookkeeping as tedious and time-consuming. But organized financial information should be a priority for SMEs. Financial reports let you check the health of your business, help you make future business plans, and smooths the process of business financing application.
The trick is to simplify small business accounting. Here are some steps you can try.
1. Keep your personal and business accounts separate
Don’t mix your personal and business accounts. Doing so will only keep you from knowing the true state of your finances. Avoid using business credit cards to pay for personal expenses. Mixing personal and business finances tangles information when, instead, we want to simplify small business accounting. Create separate accounts for personal and business transactions then record financial activities to keep track of cash flow.
2. If necessary, hire a professional
While it is tempting to save money by doing your own bookkeeping, it may be more cost-efficient to hire a professional – simply because accounting is that important. By handing over your accounting functions to people with the appropriate expertise, you don’t have to spend weeks mastering accounting and can focus fully on your business.
You can consider outsourcing your accounting instead of hiring full-time or part-time employees, as you only pay for the services you need.
3. Limit the number of people managing your accounts
While it’s often necessary to outsource your accounting or hire full-time accountants, you still need to limit the number of people managing your business accounts. It will reduce the risk of human error. Along with figuring out who would be responsible for the company’s accounting functions, create a standard operating procedure so all activities can continue to run smoothly.
4. Replace paper-based systems with accounting software
Managing small business accounting can be frustrating and time-consuming, especially when you still use manual accounting. Consider accounting software and cloud-based accounting systems. They will help reduce the amount of manual data entry you need to perform, as well as automate repetitive tasks, such as paying bills, invoicing, and following up on late accounts. Cloud-based accounting systems also allow multiple users to access data from any location on any type of devices. Your small business will work faster and more efficiently.
Last but definitely not least, establish a routine. It’s easier to do your accounting once a week rather than letting things build up over a few months. Set aside time each week to look at your finances.
Read more on small business accounting with “How to Keep SME Financial Statements in Order”