Ask any small business owner about their least favorite part of running a business and they’ll undoubtedly point fingers at accounting.
Even small businesses have a lot of accounting tasks to take care of – compiling reports, tracking expenses, balancing budgets, figuring out tax rules and regulations and so on. Most business owners do not have an accounting background, and that makes this process harder.
And it’s not like business owners have all the time in the world either. They’re often overworked as it is, so accounting often takes a back seat.
All of this does not diminish the fact that accounting is crucial to maintaining good cash flow for your business. Without proper accounting, things can go south quickly for a lot of reasons.
In this article we’ll hope to de-clutter accounting and offer some tips on how business owners can save money through accounting.
1. Open a Business Bank Account
A common mistake first-time business owners make is using their personal bank account for business purposes as well. This is a huge mistake that will cause much frustration down the line.
Firstly, having a separate bank account for your business protects you from liabilities if someone takes legal action against your business.
Secondly, it’s for convenience reasons. You don’t want to deal with sorting through tons of business transactions every time you check the bank statement. When you’re doing personal taxes, business transactions will just get in the way and make calculations much more complicated.
Having the same bank account for personal and business expenses is just setting yourself up for mistakes, as incorrect calculations become much easier resulting in inaccurate tax filings and CRA audits.
Save yourself all of this headache and open a separate bank account for your business.
2. Automate Accounting
Small businesses tend to be not too convoluted with red tape like large businesses, so accounting for them is still relatively simple. Small business owners can leverage this opportunity and automate much of the accounting processes by using accounting software.
There is a variety of easy to use accounting software that will do the heavy lifting for you, where you’re left with only the minimum details to deal with.
For example, you can connect your business bank account to your accounting software and it’ll automate tracking of expenses, invoicing and reporting.
These small business accounting software are pretty well-documented, so you can watch a few YouTube videos and you’ll be reasonably capable of using them. To speed things up, you can hire someone to teach you how to use the software.
3. Set Payment Terms
Invoicing is a crucial part of accounting yet it is one of the most hated tasks for business owners. But they’re the most important part of the accounting process since they get you paid.
Invoicing can be tricky to get right, even though it should be pretty simple and straightforward. After all, you just have to list services or products delivered and ask for payment.
Well there is quite a bit more to good invoicing than that. Setting proper payment terms for example, is very important.
Before kicking off a project, make sure you set payment terms by taking your client into confidence. Communicate to them how fast you want to get paid. It could be 15 days, a month, or even a week. Make sure your client agrees to this.
There can also be payment terms related to late payments, such as a small interest applied to payment if it is paid after the due date.
Take control of when you want to get paid, or else your client will take their sweet time in paying you. And no business wants to be paid late.
4. Prepare a Budget
Budgeting your costs for operating expenses and unforeseen circumstances is crucial. Do you have a budget for months when business is slow? What if there are months when there is no business at all? Do you lay off all your employees? That’s not how good businesses operate.
Instead of leaving it on chance, prepare a budget that takes into account all of these things.
Some key things to include when preparing a budget:
- Employee wages and benefits
- Software and hardware costs
- Office space rent
- Utility bills
- Office supplies
- Marketing and advertising
5. Be Flexible on Payment Methods
Every business owner wants to be paid as fast as possible. And one of the ways to facilitate this is by offering a host of payment methods to your clients.
We always advise small businesses to push for digital payments when possible. Popular services like PayPal charge less than banks and are much more convenient when it comes to transferring funds.
We’re not saying you should start rejecting paper checks, rather, give these as an option to your clients as well!
Numbers and accounting are boring and unexciting for any small business owner, but their importance is there nonetheless. Money is the lifeblood of any business, and with bad accounting practices your business will start bleeding money in ways you cannot foresee.
Follow good accounting practices and you will in many cases start saving money that can be spent on business growth instead.