Does the thought of taking care of the books for your small business intimidate you? When you think about keeping financial records, does it make your heart beat faster and your blood pressure rise? Unfortunately for many, their discomfort with reviewing their books makes them do it less often, which ends up compounding any issues.
Don’t panic! You can achieve victory over your bookkeeping anxiety. All you’ll need to do is learn some basic accounting tips that will put you back on the right path. Consider these five accounting tips that you should know (these tips, and many more like them, can be found in our Accounting Boot Camp ebook series).
1. Check your books often
Whether you check them daily or weekly, they must be done on a regular basis. Many small business owners get in trouble when they start to look at their books exclusively at the end of the month or even (gasp!) at the end of a quarter. The result? A big mess. What makes matters even worse is that their experience will be so time-consuming and frustrating that it’ll be weeks or months until they want to reconcile the books again. The cycle will never end. Sound familiar?
The first and most basic accounting tip is to set a schedule to review your books. Depending on the amount of transactions you’ll need to go over, a daily or weekly schedule works best. Once you’ve set the schedule, make sure you stick to it. You’ll find the entire process becomes less time-consuming, and mistakes will become much more difficult to make.
2. Review your accounting system
When was the last time you took a look at the system you have in place for your books? Performing a review of your accounting system may not seem like a basic accounting tip, but it’s actually a very important one. There are many different programs on the market, and you may be missing out on new functionality and features by using your current accounting program simply because “we’ve always done it this way.”
When you’re looking at new accounting systems, consider these issues:
- Local program or web-based? Do you want to install a bookkeeping program on your computer or would you prefer a program that allows you to log in from any computer with an Internet connection? A local program may be less convenient but will usually only cost the initial price of purchase, while a web-based bookkeeping program will likely have a monthly fee.
- Does it tie in with my bank? Does your bank “play nice” with your accounting program, allowing automatic downloads of transactions? You’ll find that this feature can help you diminish mistakes by reducing the amount of information you’ll have to input.
- Can I process payroll? Does payroll make you cringe? Did you know that many accounting programs can help you with payroll, including taxes and IRS forms? This basic accounting tip could save you considerable time and headache by streamlining a task that has no margin for error.
3. Understand the seasonal nature of cash flow
With many businesses, there are seasons that are more profitable than others. Understanding the ebb-and-flow of cash flow can help you make better decisions about your small business’ financial future.
When giving basic accounting tips, financial experts will encourage businesses to look at profitability over a several-year period. Do you find that certain months generate more income? Do you see areas which are, historically, more difficult? Understanding these trends in your books will allow you to be proactive in making financial decisions. Instead of cleaning up messes when you’re reviewing the books, solid accounting practices will help you find potential opportunities or future threats.
A period of higher revenue is a good time to issue employee bonuses or to invest in research and development. Cycles of lower revenue may require you to adjust employee hours. The data you need to make these decisions can be found in your books, so diligently search them for clues.
4. Match expenses and revenue
When thinking of basic accounting tips, you may not consider the relationship between your expenses and revenue, but it’s an important link you need to examine. If you don’t, you could be making mere pennies on each transaction. Goods and services must be priced correctly, and solid bookkeeping will allow you to make sure this happens.
Matching expenses and revenue requires that, for each transaction, the expenses that correlate must also be recorded. For instance, if a landscaper charges $100 for a service, they must record the sale as well as expenses, such as labor, insurance, and materials used to care for the lawn. Although this process may seem time-consuming, it will help you keep up with rising costs. The landscaper’s margin will change almost daily due to the volatile price of gasoline. There are likely other fluctuating costs they’ll have to consider as well. This basic accounting tip will ensure you’re charging the correct amounts for your goods and services.
5. Utilize resources to learn additional basic accounting tips
Many professions require employees to achieve continuing education credits to allow them to stay abreast on the latest developments in their field. Those who deal with finances must do the same. Consider making an appointment with an accountant to have them look at your books and give you further basic accounting tips. The appointment will be money well spent, and you’ll likely save money in the long-run from the lessons you learn.
Also, take a moment and download our Accounting Boot Camp ebook series. This entertaining series of books will have you in control of your accounts in no time. Download The Income Statement for free today and find out how we make understanding accounting fun and easy.