Most businesses deal with hundreds to thousands of transactions each month. These transactions keep the business flowing, and the more positive transactions that take place, the more the business grows.
Managing this plethora of transactions, however, can be challenging for any business, no matter the size. This is particularly true if the business owner is not mathematically inclined and doesn’t understand the various nuances of professional accounting.
To mitigate the risk of missed payments or unallocated amounts, we’ve created a handy guide outlining the best way to manage your business accounting.
Photo by Ashraf Ali on Unsplash
While startups may aim to keep their workforce lean during growth, hiring a knowledgeable financial professional is a key step to effective financial management. In many cases, this doesn’t even need to be a full-time position.
By hiring a professional accountant, either full-time or on a contractual basis, you can be assured that your finances are being managed correctly and according to any applicable regulations. This will protect your business in the long run and help you know where you stand in terms of cash flow and profits or losses.
A given in any business is the importance of separating personal and business finances. Many sole traders or smaller companies feel opening a separate business account is unnecessary, as they mean more fees and require managing extra accounts. However, not doing so can be detrimental.
Regardless of the size of your business, ensure that your personal finances are kept separate and that all business transactions occur using an account opened under the business’s name. Doing so will ensure your business accounts can be balanced by yourself or an accountant and can also help you avoid complications when filing personal or business taxes.
There are plenty of options for local or cloud-based accounting platforms to manage income and expenses, and many also support stock tracking and other useful business tools.
For any company that runs an e-commerce platform, many of these software options offer integration into popular payment portals. For this reason, many companies, whether small e-commerce shops or major gambling sites that accept Trustly, use these systems to immediately capture payment details and allocate them accordingly.
While additional expense and income accounts can be added at almost any point, having a clear and detailed chart of accounts from the start can help avoid future confusion. This chart of accounts forms the backbone of all your accounting processes and reports.
As such, before you start tracking your finances, take the time to outline your chart of accounts carefully. Consider any income and expense accounts you need (or may need in the future). When doing this, ensure to use a consistent convention—something accounting software often aids with. Once established, ensure you regularly review it to see if your current accounts suit your company and its scaling.
Alongside a clear chart of accounts, financial policy is crucial to business accounting. Therefore, clear policies should be outlined for every financial scenario, including incoming sales, expenses (including payroll), refunds, and other company costs.
Having a detailed policy for every situation may seem unnecessary at first, but it will help protect the integrity of your financial affairs. Should your company scale and employ others, it will also serve as a benchmark and provide a clear understanding of how things should be done.
One of the greatest dangers to understanding current solvency and cash flow for small and large companies is the incorrect reporting of expenses. Therefore, ensure your policies and actions are aligned to account for every expense, no matter the size.
Doing this will ensure that financial reports are accurate and allow you to see exactly what it costs to run your business. Failure to do this could also cause your company to report inflated profits, resulting in higher tax rates and unnecessary financial losses.
While many business experts recommend reconciling bank accounts monthly, doing it more frequently can provide a clearer understanding of your financial situation. This is because reconciling your bank accounts will quickly highlight if there is a flaw in your accounting practices or systems and can even help you identify possible instances of fraud.
More than this, reconciling your bank accounts helps ensure the accuracy of your financial information against the institution that actually holds your money. This accuracy leads to better financial reporting that can be used to make business decisions.
Taxes and changes to taxation rules can significantly impact your company’s cash flow. The only way to mitigate these effects is to ensure that you are aware of the current tax laws and how they will affect your financial affairs.
While hiring a professional accountant means they handle this on your behalf, having personal knowledge is beneficial to ensure you're paying the right amount of tax. If unsure, you can hire a professional tax consultant to provide better insight into your company’s obligations and compliance.
Finally, to properly manage your business accounts, you will need an accurate overview of your finances. This can be achieved by regularly drafting and analysing financial reports such as profit and loss statements.
By reviewing these reports, you will be able to see if your business is experiencing growth, whether profit is being made, or if there are expenses you may need to trim. All these things can help you streamline earnings and help your company scale.
By following the above steps, managing business accounting can transition from a formidable challenge to a routine skill. Conversely, neglecting them can result in unnecessary business difficulties.