Top Accounting Tips Every Entrepreneur Should Know

Financial management is extremely important for businesses to survive in this cut-throat situation. For accounting professionals, learning the nuts and bolts of accounting and bookkeeping is as necessary as a CEO having conversation skills.

According to a survey by the Small Business Administration, about 30% of new businesses fail within the first two years, often due to poor financial planning and mismanagement. This means, if you are also a business owner, time to invest your pennies into hiring some highly capable professionals to take care of your accounts. 

With nearly 82% of businesses reporting cash flow problems as a primary reason for failure, it’s clear that mastering accounting is not just an option—it’s now a necessity. So, keep reading this article till the end to have some accounting tips that you must know firsthand.

Keep Your Business and Personal Finances in Two Separate Pools

It is necessary to avoid mingling the cash of the business with that of the proprietor. The two together can lead to misunderstandings, some tax complications, and a major lack of traceability of business expenses. 

If you open a different business account, you will realize that having clarity in numbers is useful, and if you can get to know the health of your finances you are on the right track. This is the first and foremost rule of understanding why keeping track is necessary.

Basic Accounting Principles

Of course, it is easier to recruit a professional accountant or incorporate accounting software into your business, but it does not mean that you ignore learning some accounting fundamentals yourself. 

You must start by learning about current and fixed assets, liabilities, total income, and expenditures. This way, basic understanding can help you make better financial choices and discuss the numbers with your accountant in a way he/she understands.

Monitor Cash Flow Regularly

Cash is still the king in business. If the cash flow of your business has a negative slope, which means it just keeps escaping from your accounts, your business has a shot at surviving. Stay on top of cash flow and forecasting trends in the future, keep operation costs under control, but enough to sustain an emergency fund. 

This way, you can also leverage in preparing for fluctuations in sales that are usual at certain times of the year, or for any other odd, unforeseen expenses that come up.

Track of Receipts and Invoices

Ensure that you have exact records of all the receipts and invoices for the accounting department. One of many that will help you come the time of tax filing season. It is possible to keep receipts in digitally named folders so if ever you need it you already know where to find it.

Receipts and invoices are always to be kept near your access.

Set Aside Money for Taxes

If you are not saving for taxes, penalties and liquidity may come and hit you hard. Save money each time you make, so as not to be caught up in a big surprise at the end. This will ensure that taxes do not get you by surprise, and the things to look for when trying to identify the various taxes have been highlighted above. 

You may also want to consult with a tax adviser to ensure you have your individual plan on taxes and anything with respect to a deduction.

Create a Realistic Budget

Preparing a budget is the starting point of managing an individual’s, group, or organization’s finances. With the help of budgeting, you may be able to allocate resources in the right proportions, work out expenditures, and look into further expansion. 

Note: It is emphasized here to create a “realistic” budget because setting up unrealistic or unapproachable goals can lower the team morale and may affect performance.

When creating a budget – make sure to list all the costs that will be incurred and some extra to cover those inevitable non-essential charges. These charges may crop up when you are more focused on meeting your business goals. 

It is recommended that budgeting should be done on a halfway through-the-year basis in order to check if what was planned is still valid. 

When making a budget, you can consider the following points:

• Review previous financial accounts.
• Consider inflation.
• Consider revenue sources.
• Take seasonal patterns into account.
• Set clear objectives.
• Monitor and review.
• Create a profit and loss statement.
• Create a labor budget.

Wrapping Up

Another way is by performing a financial analysis to see how the business is doing (or where it could be doing better). Income statement, Balance sheet, and statement of cash flow should be reviewed most often as they indicate how well or badly off you are financially. It may even be useful at such times as when there are matters such as an expansion of the company or acquisition of new equipment and so on.

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