What are best accounting practices for small businesses
Accounting is important for every company and more so for a small company. Sure, this might seem like a mundane task, but understanding how an accounting system works is crucial for running your company.
Keeping track of your business finances is more than just a way to pass the time. Bookkeeping isn’t a hobby and it isn’t something you need to do just to make the government tax department happy. It’s important to keep the books because that’s how you know where your business stands financially. You don’t want to be surprised by an overlooked tax bill or have no idea how much inventory you have on hand when placing orders with vendors. You’re also less likely to lose money in the long run if you know where it is coming from and where it is going.
So, we have prepared a comprehensive list of best practices you should follow in accounting while running your business. We have tried to make the list non-technical and not just discussed things like shortcut keys in tally or payroll tally. Visit this page to learn about these.
Let’s now take a look at the things you should be doing while bookkeeping for your business:
Choose the method of accounting suitable for your company
Cash accounting and accrual account are the two methods that are equally accepted. Cash accounting is better for small companies since it doesn’t require setting up additional accounts to track accrued items. It’s easier because there are fewer steps involved in recording transactions, and businesses can avoid delaying payments when they don’t have enough cash on hand.
Accrual accounting is better for large companies since it is more accurate and provides information on a more consistent basis. Accrual accounting, on the other hand, allows businesses to track revenue while a sale is still pending.
Keep a track
Keeping track of expenses is an important part of doing business. The information you gather from your records will help you to make decisions about whether to keep doing business with a particular vendor or to change vendors, or whether to offer a product or service that may not be profitable.
The costs associated with starting a business are high and include more than just the purchase price of your products or services. Even if you choose to start small and not have an office, employee salaries and miscellaneous costs can quickly add up.
Don’t mix personal and business finances
Maintaining separate business and personal books is a must for small businesses and sole proprietorships. They can be a help for bigger businesses as well, especially those with owners who want to obtain financing. But even a larger company can find the process of separation useful in several ways:
By separating your business and personal finances, you’ll be able to track cash flow more easily because each source will be accounted for separately. You’ll also have an easier time filing your taxes, since all of your tax-related expenses, such as office supplies, phone calls and rent, will already be documented.
Keeping your personal and business finances separate is smart because it allows you to forecast how your business’s financial performance will look in the long term. If you don’t separate them, you may think that your company has enough cash on hand when in reality you are simply using up your personal account to pay for business expenses as they come up.