When you look at your financial statements, you should know what’s behind every figure. While you don’t need to take a course in advanced accounting, it’s useful to have a sound understanding of basic accounting practices and terminology, including the following three kinds of statements:
- The balance sheet is a snapshot of your finances on a given day.
- Income statements show a business’s progress over a set period of time.
- A cashflow statement shows how changes in the balance sheet and income affect cash.
With the right small business accounting software, bookkeeping needn’t take hours of your time. With the right tools, accounting can be quick and simple—so that you can focus on your business journey.
Keep up-to-date records
Small businesses with up-to-date accounting records are far better at making informed, educated decisions, based on current facts. It’s essential that you allocate some time every week to updating your books.
With the right software, you needn’t spend more than a few minutes a day, but it won’t be long before your business starts reaping the rewards.
Keeping your records up to date helps you create and maintain a solid and reliable idea of progress—making it easier to see if you can pay yourself and your employees this month.
You need to record revenues, business costs, and allowable expenses as they happen. A few minutes a day can save you hours over the course of a year.
Create and maintain a budget
Try plotting your future expected income and expenses so that you can foresee cash flow.
Creating a monthly budget until the end of the current financial year—and then tracking and updating your provisional figures with the real ones as they come in—helps you monitor progress against your plan, and adjust your plan to improve future performance.
And don’t forget to run your overall budget for the full current financial period (i.e. usually a year) so that non-regular expenses—such as annual insurance premiums, taxation or periodic services expenses—are also factored in.
Track and manage your time
Time is one of your most important resources—you’ll know that better than anyone. One of the most important skills you need when running a small business is time management, with an acute understanding of how to effectively prioritize the most important tasks.
Moreover, in service industries you need to rigorously track how much time your employees spend on each of your client accounts, and ensure that it’s reflected in the amount you invoice them each month. Spending too much time on accounts that aren’t making any profit is a costly mistake.
Keep a close eye on unnecessary costs
Tracking how much time is spent on activities that can’t be attributed to any one account can make a big difference to your cash flow.
Understanding these costs properly—being aware, for example, that an external consultant costs more per hour than an employee—and taking action means you’re in a better position to act decisively and drive costs down.
And that applies to all your other business expenses too. Whether that’s finding cheaper utility providers, or choosing to print your company brochures using a less expensive finish, you should keep a close eye on costs and deploy appropriate internal purchasing approval processes.
Conquer end-of-year submissions
At the end of each year you will have to submit accounts for your small business, and subsequently pay tax on your profits. While you will have time to budget for the tax bill itself, the operational impact of end-of-year accounting can be punishing if you are poorly prepared.
To make your life easier, file away all invoices, receipts, remittances and any other accounting paperwork at the end of each month, in chronological order, so that it’s ready for easy retrieval and submission with your accounts.