Published By Blog Breed
Back in the day, becoming an entrepreneur was a tough nut to crack. The primary reason behind this was kick-starting a business venture used to be a complicated process.
Fortunately, that is not the case anymore. Today, anyone with a promising business idea can dive into the world of entrepreneurship. All thanks to the modern-day superior technological tools that have either minimized the initial hassles or cut them entirely out of the equation.
However, it is shocking to see several businesses failing to make it big despite sophisticated technology’s availability. Statistics illustrate that around 350000 businesses shut down every year. The figure makes up 10 percent of the total businesses.
That is a staggering number, to say the least. Among other things, financial mismanagement is right up there that triggers the doom of a company. Money is at the heart of a business. If you fail to keep a proper check on it, you are asking for trouble.
To make life easier for you, we have compiled a list of accounting hacks. Rest assured, they will not only ensure that you hang in there but also thrive:
Also Read: 6 WAYS YOU CAN FINANCE YOUR SMALL BUSINESS
1. Set Up A Separate Business Account
Business people tend to merge personal and the enterprise’s finances. Surprisingly, this is a common phenomenon among entrepreneurs who possess a conventional or online accounting degree from a reputable institution.
They typically assume the money will come back to them at the end of the day, so why bother creating a separate account? It sounds like a reasonable argument on the surface. But if you dig deep, you are likely to come across clear benefits of having a business-only account.
For example, sometimes, a business requires additional funding to delve into a big project. In that case, you will have to approach a lender who will ask for a transparent credit history of your business. If you have personal and business expenses mixed up in one account, the lender will turn a blind eye to your loan application.
Another upshot of creating a business account is that it frees you from personal liability. In simple words, when a company comes to a standstill, creditors can’t hold the owner accountable to pay on behalf of his company.
Here are some other advantages of possessing a business account:
- You might be liable for tax breaks
- Enables you to apply for a business credit card
- It leaves little to no room for errors while filing taxes
2. Cherry-Pick The Right Accounting Method
Accounting methods are divided into two categories – cash and accrual. It is mandatory to pick them for your business. Both these methods have their share of pros and cons. As a rule of thumb, experts recommend going for a cash accounting method if you are a small business owner as it is super easy to implement. On the other hand, the Accrual accounting method is more suitable for big companies with an abundance of resources and a broad customer base.
It bears worth mentioning that the selection of a suitable accounting method has to do with the goals you want to accomplish. Although there is an option of changing the accounting method, it could be a very exhaustive procedure. So take your time to evaluate your business thoroughly and then make the final call.
3. Map Out A Business Budget
When you are running a business, the last thing you would want to do is to rely on the guessing game. Many entrepreneurs realize that they have no money to continue the business operations in the middle of a project. And by the time the realization hits, it is already too late to arrange funds.
That is where preparing a detailed business budget makes a big difference. It gives you a vivid idea about future expenses. After coming to terms with the amount required to achieve future goals, you can take various measures to stabilize your financial standing to meet those goals. Besides, it will prepare you to meet unexpected challenges down the road.
If you do not know the essence of a solid budget, you shall find the following tips pretty useful:
- Be realistic: It is the hallmark of s prudent businessman to aim high. But when it comes to creating a budget, you need to hold yourself from being unnecessarily ambitious. Try to pursue goals that lay within your financial premises.
- Exercise flexibility: It is normal for a company to observe fluctuations on several fronts such as sales, purchases, employee appraisals, and so forth. Therefore, you must revise the budget depending on the changes witnessed in the organization.
4. Divide Expenses Into Categories
Categorizing expenses is something that businesses usually carry out during the tax season. But it should be an everyday occurrence. So much so, expense categorization is even necessary for businesses in their initial phase that have yet to engage in complicated documentation.
Arguably, the most significant advantage of subscribing to this practice is keeping track of expenses contributing to undue spending. Once detected, it will be easier for you to control things before it’s too late.
You should consider splitting expenses into the following expenses:
- Office Supplies
5. Internal Controls Hold The Key
Every businessman does his best to get honest and integrate employees on board. Yet, financial frauds are rampant in the business world. According to a widely cited study, a business loses nearly 5 percent of its gross revenue owing to fraudulent activities. Internal controls can lead to better checks and balance within an organization.
Here are some of the tried and trusted internal control strategies you should implement right away:
- Make sure to document every business operation.
- Every employee expense must be subject to approval.
- Schedule overview of office expenses every week
- Set transaction limits
- Do not allow anyone to enter the company’s general ledger apart from a few higher-ups.
- Assess potential risks
6. Recruit A Qualified Accountant
Every business owner has to wear multiple hats. More so, if you happen to run a small business. Since accounting is a full-time job, you may end up making irreversible blunders even if you are well-versed in the ins and outs of accounting. Hence, it is highly advisable to hire someone who can maintain books.
The Final Verdict
Accounting is one of those aspects that can make or break your business. So you can’t afford to go wrong here by any means. We have listed basic accounting practices. Sticking to them can ward off a lot of financial concerns during your business journey.