Jay launched his fantastic business last year. He used his personal savings to pay for office space and a laptop which he needed to start operations. Well, he did a couple of activities right to build his new business except for one thing, his accounting. He kept track of all expenses by putting the receipts in the lowest drawer of his table once in a while. A couple of months later, Jay wants to open a corporate bank account. He has been paying suppliers from his personal accounts and the bank charges were rising. Plus, he hopes to secure a financial loan in the coming weeks.
Jay eventually struggled to separate his personal expenses from business-related ones, so his financial records and income statement were…undependable. He resolved to be more organized this year, but he is yet to create or outsource a real accounting system for his growing business. However, Jay is not alone in this.New business owners often fall short in the area of book-keeping and accounting.
To keep this from happening to you, here are ten (10) accounting tips for SMEs.
Ten (10) Accounting tips for SMEs
1. Estimate important expenses
Forecasting and budgeting for your major business expenses, for example, raw materials, office space, and business development are essential in planning your finance. These will help ensure that your business operates in perpetuity. Also, statutory obligations can be estimated if your financial records are well documented.
2. Open business account(s) on time
A new business owner is often responsible for almost everything, including bookkeeping. To ease your stress and to avoid plenty of mix-ups later, open a separate bank account for your company or enterprise. Doing this will save you ample time and energy when sorting your expenses.
3. Sign-up for online banking
Open a corporate account with a bank that has an online banking platform for its account holders. Online banking is more effective in monitoring your company’s cash flow, as it gives you instant access to generate reports. Also, it is more convenient for managing funds and in settling payments.
4. Choose the right accounting method
Select an accounting method for your business comes first before you record even the simplest transaction. There are two types of accounting method; cash basis and accrual basis accounting. Cash basis accounting records revenues when cash is received and expenses when cash is spent. It is ideal for businesses that deal strictly on a cash basis. Nonetheless, accrual accounting records a transaction when money is assumed to occur. It gives a better viewpoint of all transactions and the impact on a company’s assets, liabilities, and income.
5. Maintain proper records
Businesses, including SMEs, must maintain proper documentation. After all, what is not documented is not done. Written evidence for business activities, such as assets, liabilities, income, expenses, and agreements, must be easily accessible in an orderly manner too. Being organized all-year-round eases stress during tax filing.
6. Think paperless
No doubt, information technology is changing how businesses keep records. Every new entrepreneur should consider the benefits of operating a paperless office.
7. Avoid settling business expenses in cash
Cash payments are hard to trace than non-cash payments. This increases the risk of misstating income. Rather, use electronic payments or cheque when settling company expenses. This method makes it easier to record complete details of amounts incurred.
8. Petty cash receipts are important
Petty cash transactions are often overlooked because they are small, daily transactions. However, they are prone to theft. When ignored, small amounts can grow into a big pain. It is therefore important that petty transactions are recorded and documented promptly. Also, reconciling your petty cash balance on a daily basis reveals any discrepancies.
9. Perform a periodic review of financial data
It is ideal to keep track of the financial performance each month or at year-end so you can tackle seasonal variations and growth potential. A proper financial analysis helps SMEs make informed decisions about the business.
10. Talk to an expert
New entrepreneurs have tons of questions about their business which is fine. The only caution here is, seek expert help early. Don’t procrastinate until the financial year ends or a tax issue erupts to start a conversation with an accounting professional. Prompt consultation with a financial expert makes a big difference when you start a business.