Small Business Accounting Hidden Secrets Matt Oliver
Bookkeeping for small businesses might seem not mandatory, but every company, from small-medium sized to large companies and parastatals, needs solid accounting to have a continuous profits return.
Moreover, it also requires reliable accounting helps to ascertain the expenditures and revenues for your financial year.
Bookkeeping might seem expensive for small enterprises to hire qualified personnel if you are not used to it. On top of that, it is time-consuming; today, this article will cover the top secrets of managing your accounting for your small business efficiently or knowing when to hire.
So, Why Should You Have Bookkeeping
- Every business aims to make profits and satisfy customers’ needs, so bookkeeping acts like your second boss to help you achieve your financial goals. For instance, you will perform a reconciliation of the bank account by comparing your records and what your operating bank has recorded.
- Bookkeeping helps you in budgeting. Maximizing profits and minimizing expenditures is all you need. Having a monetary roadmap assists you in planning for the current and future spending by studying cash flow depending on the dominant factors being internal or external conditions.
- Assist in outlining your business targets. When you know the hidden secrets of bookkeeping, you can efficiently plan for your targets and achieve them by the end of the day because you know what to include and exclude.
- You get a peaceful state of mind. Any failure to have an organized accounting for the business is a massive disaster; by maintaining bookkeeping, you avoid cramming tones of information in your head. It also helps you calculate the tax you need to pay at the end of the day hence, having ample time to concentrate on other issues to make your business prosper beyond imagination.
- It helps you to meet government policies. The government always puts in place favorable policies for them to carry out its functions maximally. Today, the world is changing day-night due to technology, so it is significant to keep digitalized accounting to comply with the law and, most importantly, to minimize cash outflow.
- Bookkeeping is educative itself. Market structure isn’t static because new products and services enter the market; hence, by keeping your accounting, your know-how to handle prevailing factors that might interfere with your performance. For instance, it assists in determining the maximum cost you can spend on a specific product.
Bookkeeping is a powerful tool. However, you should know what to record to keep a relevant account. If you are new to Bookkeeping, you might register things irrelevant to your small business. So, before tacking items to include to have successful Bookkeeping, understand some of the terms related to Bookkeeping.
Terms Associated with a Successful Bookkeeping for Your Small Business
Bookkeeping hidden secrets start by understanding simple terms that you mightn’t know but are vital principles. Accounting is not a one-day activity like buying a product from a manufacturer and waiting for a couple of months before doing it again. It would be best if you were acquainted with the following terms;
State of financial statement (balance sheet)
It is a financial tool that determines your business’s ‘health’ status. For small businesses, you can do it monthly or at other selected time intervals for your commerce (should be more than one month); it can be done after one year or time frame chosen for more significant firms.
This tool will help you evaluate the total assets for the business, liabilities, savings, and funds from outside sources (loans) that sustain your operations. To determine this state, you can use Generally Accepted Accounting Principles (GAAP), whereby if the liabilities and assets are equal, it shows that your small business is doing well. However, if the liabilities exceed the assets, you should minimize credits or expenditures to be safer.
It is the most important book to have for the business. Bookkeeping contains all the information you need at any point of the day. Every expenditure or revenue received is recorded here for future use. It gives you a practical way of storing user information and hence offers you a peaceful mind; you only need to refer back if something is in need.
For your business recording, you can use the ledgers or apply modern technology by using computers that store huge amounts of information that can be retrieved back in case damages occur.
Expenses, Incomes, & Capital
Expense is any activity that takes money out of business. A successful expenditure shouldn’t exceed the revenues; hence, before commencing your business, it is mandatory to estimate all you need; a proper way is to create a business plan.
Incomes are the determiners of the business ‘life.’ Bookkeeping will assist you in knowing the revenues received from any investment in the commercial. If you fail to keep one, you might be deceived into making profits, but this will be real when liabilities overcome the assets.
Capital investment should be used wisely so that your business can achieve its goals. For a better result, you should understand what to be included (will be discussed later) while determining earnings assists the entrepreneur in knowing the well-being of the business.
Unveiled Two Types of Bookkeeping
The article disclosed all the hidden secrets you should pay keenly for a fruitful outcome. There are two types of accounting that you should understand to gauge yourself in your business operations. It will assist you in evaluating which can work for you efficiently
This accounting principle states that the cash is ‘won’ instead of received from the clients. For instance, if a potential purchaser signs a contract with you even without paying, then it is said you have ‘won’ the customer. This type of bookkeeping may not be appropriate for small businesses, and it is recommended to go for the second type
Cash Base Accounting
This bookkeeping states that the document only records revenues and expenditures that cash is incurred. It is the best accounting for small businesses in town, and most importantly, it assists in evading losses.
Top Things to Record in Your Bookkeeping for Tax Payment
If you are new to the business, this article has highlighted some important documents to help you keep a clear track of the daily transactions you should keep in the accounting book. These documents are essential in making a critical rationale in business evaluations, especially tax payments, and they include.
- Payment evidence
- Procedures W2 and 1099
- Financial statement from the bank or your records
- Reports from credit and bank cards
When to Update the Accounting Books
Updating the book of accounts is essential for small businesses to track all their activities. It is worth it as an unveiled secret for prosperity. There are two significant times to update the books depending on your selected period. You should not accumulate the records too much when picking time before transferring them to the final bookkeeping.
This is the best period if you run a small business. Doing bookkeeping weekly minimizes hefty work if you haven’t hired extra personnel to do the job. Moreover, it consumes less time due to minimal accumulation of transactions, and on top of that, it is also economical.
Makes sure to record the information easy to understand even by the third party, though keep it private because it is personal unless needed by the authorities. The proper recording also helps to calculate tax payable effortlessly.
You can do a monthly recording to track the performance of the business. It will tell whether you are making progress or regression. Moreover, it consolidates with the bank to know the transaction that might not have been updated on their side.
Fundamentals Concepts Applied in Small Business Bookkeeping
Every successful business has some definite rules that are applied to make sure all the day’s targets are completed or attained as proposed. These concepts help you manage your small business accounts without pressure or doubt.
These laws help you track even a tiny transaction that mightn’t be so significant but needed when preparing a loss and profits account. The concepts include;
- Accounting equation. This concept states that you will debit all the assets and credit the liabilities inclusive of capital as per the amount transacted. It is written as; Assets = Liabilities + Capital.
- Accounting Period. It states the time frame ready for the transactions to be viewed.
- Conservation Concepts. It is a vital law that makes you think about expenses so much; hence, you figure out how to minimize cash outflow. So, it is essential to take in all the expenditures first and not earnings until you receive them.
- Accruals Concept. It is vital to conserve the credits and debits of the commercial organized. You have to record capitals, liabilities, and assets to portray professionalism for easy tracking.
- Going Concern Concept. This law states that you must be committed to a single business line even if you are not monetarily firm. It will assist you in learning how to overcome challenges in the future.
- Matching Concept. The concept is clear that every entry should be recorded with the responding date when it was made. It makes it easy to track down all the transactions. Moreover, add what is causing the effect and result under the same info.
- Economic Entity Concept. The concept states that you should differentiate between expenditures and income & profits for easy evaluation.
- Consistency Concept. It says that you have to adhere to a single system of recording your transactions and that any change made may result in a hefty loss.
- Materiality Concept. The concept states you have to record even minor transactions like purchasing a pencil. Doing this will get a true reflection of the business performance that you can rely on while making a decision.
Upholding a Systematized and Neat Records
The business’s success depends on how well the transactions are managed and recorded. Neat records are easy to track and evade errors associated with wrong readings, such as;
- Principle of original entry where the transaction is made on the wrong account
- The error of omission where a whole transaction be not be noticed in the bookkeeping
- The error of commission happens when you misread transactions that might occur if your records are not neat and organized.
- The error of duplication. In a scenario where the person in charge of recording is changed, duplication might occur if the new personnel can’t see the transactions correctly because they are not organized.
- The error of reverse entry. Failure to record appropriately may result in this error where one fails to recognize between expense and income of the business.
Unfortunately, these errors will result in erroneous information that might terminate the business. On top of that, problems like delayed payment, failure to detect fraud, increased or incorrect cash outflow, and fault expenses might occur.
In the current world, you should minimize stress and focus on activities you need to complete. It is only done when you organize your work correctly. As a result, you can use the personal journal or account book to ease this.
How to Evade Bookkeeping Faults?
It provides a stable financial defense to evade monetary crises that might occur. Here are some practical steps to prevent accounting errors for your business.
Apply the Up-to-date Methods of Accounting
Embrace technology to get the best result for your business operations. Purchase the latest software and I-cloud to store your information safely, which does update itself, unlike the desktop, which requires manual procedures.
Periodically Check on Budget and Expenditures
It is crucial to have an updated financial report to prevent assumptions but work with facts. A budget also helps you plan how to spend money on every product or service.
Hire Skilled Personnel who Understand Data Entry
Accounting is all about accuracy and speed. It would be best if you were an individual who is key to every detail to provide information that can be relied on running the business. Moreover, someone who can tackle some questions if they arise.
Conduct often Qualified Analysis of Accounts
Reviewing the accounts helps you to have information that reflects the actual expenses and incomes of the business. It also assists in knowing the financial status of the company if it can pay all the liabilities
Differentiate Business and Personal Capitals
It might sound like an easy task to handle, but failure to separate the funds calls for entrepreneurial failure. Your business should have a different account to keep the financial transactions. Similarly, personal finances should also follow the same track. By going through this, you experience positive impacts and avoid confusion.
Final Thoughts about Small Business Accounting Hidden Secrets Matt Oliver
Small businesses are prone to a financial crisis if there is no proper company accounting. After going through the article, you can apply the fundamental concepts discussed above. However, you need to consider the business structure before selecting which idea to use.
Making profits should be your primary goal for every financial year. It doesn’t matter what the dominant factors that might affect the trade operation, make sure to tackle the accounting errors keenly, as stated above, to have a fruitful business journey.
In case you can’t handle the bookkeeping alone, ensure you hire trustable and skilled personnel to carry out the gig. Moreover, apply modern accounting to evade problems associated with outdated or manual bookkeeping.
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