Must-Know Accounting Tips for Businesses
Proper accounting is absolutely crucial to the success of your business. Not only will it ensure compliance and support streamlined operations, but it can also help to prevent some of the most common cash flow issues that cause business failures. To that end, here are some must-know accounting tips you should follow to ensure the growth and success of your business:
Separate Your Personal Expenses
It’s not uncommon for business owners to combine their personal and business finances. While this might not seem like a big issue at first, separate accounts can be mandated by law in many areas, not to mention that they will come with a number of benefits.
For instance, different accounts make it simpler to track business expenses for potential tax deductions, they provide more credit options for companies to cover their cash gaps, and they offer important personal liability protection for business leaders. With that in mind, you should open new savings, checking, credit card, and merchant services accounts for your company to enable business-specific transactions.
Although an essential aspect of financial management that allows you to track your business income and expenses and ensure smooth processes, accounting is likely not among your main skill sets. Hiring a professional accountant is generally advised, at least part-time according to your needs, but additional tools could be of great help as well.
For example, specialized accounting software can help to automate any error-prone and time-consuming bookkeeping processes, making it simpler to find all necessary information and complete financial statements. Cloud-based software, particularly, can benefit small businesses due to its accessibility and ease of use.
Consider Setting up an SMSF
A self-managed super fund (SMSF) is an alternative way to save for retirement. What separates SMSFs from other funds is the fact that the members of these funds are trustees as well, meaning that you can run an SMSF for your own benefit.
This is an incredibly effective solution that enables you to save more for the future, but it does come with one drawback – the members are responsible for complying with the tax and super laws. Fortunately, SMSF administration can be outsourced to an experienced accounting professional. They will be able to establish your SMSF and streamline the entire set-up process while assisting you in administration and other superannuation procedures as well.
Note: The “proper” technique to include superannuation on a US tax return is fraught with confusion. This issue affects not just US nationals and green-card holders who live in Australia, but also any Australian citizen or permanent resident who is living in the US and has collected Superannuation while residing in Australia.
Pay Attention to Large Expenses
While accounting software and industry professionals may help in tracking and optimizing regular expenses, it’s worth paying special attention to the largest costs your business incurs. Labor and inventory costs tend to be the biggest contributors, and reducing them could come with significant savings for your company.
To lower your labor expenses, consider hiring contingent workers that charge an hourly rate and don’t require typical employee benefits. Time-tracking tools can also be used to calculate the costs of certain tasks, enabling you to budget for them more wisely. In terms of inventory costs, they can be managed by tracking carrying costs, the turnover ratio, obsolete inventory losses, and other important metrics.
Budget for Necessary Tax Payments
Making a profit is incredibly exciting, especially for small businesses wanting to invest back in product development and marketing. However, it’s important to remember that not all of the money is actually yours.
Some of those profits have to go towards taxes as well, a situation that may end up being difficult if you don’t plan in advance. Approaching tax deadlines with no cash to cover what you owe can come with fines and other legal troubles, not just stress and delays. For that reason, it’s recommended to save for taxes as you go along, to avoid any last-minute shocks. If you have a business savings account, set some money aside there regularly for necessary tax payments.
Keep Accurate Company Records
Recordkeeping is a crucial responsibility for businesses, one that has to be carried out meticulously to avoid any setbacks in daily operations and potential legal consequences. Accounting software can help in this area as well, allowing you to store and process your records digitally, track expenses, and keep tabs on tax deductions.
Whether you’re using software or not, the most important records you should keep include expenses, gross receipts, and fixed assets such as statements and invoices. In general, the amount of time for which you need to keep your business records varies from your area and local government, but suggestions range anywhere from three to seven years.
Accounting Tips for Businesses
Business accounting can be a complex and challenging task, especially when business owners are forced to sort their finances on their own. But just by following the tips above and taking some smart steps to establish a good accounting process from the very beginning, you can easily ensure success.