Starting a small business requires preparation, planning, and research. This preparation is especially important when it comes to the company’s finances and accounting. Without the proper tools, owners are at risk of mishandling expenses resulting in: lost income, high-interest rates, increased stress and lost profits.
If you’re a small business owner continue on to the article below where the most important principles of financial accounting are outlined in detail.
1. Track Your Expenses
Failing to maintain detailed records of the company’s expenses can result in costly fines, added interest, and mismanaged accounts. To avoid this situation, owners will need to track every purchase that was made for the company by keeping the original receipt, invoice or document that was provided for the purchase.
Further, it’s also recommended to create a digital copy of the receipt’s by scanning, photographing or uploading it onto a hard drive or external memory card. These copies ensure that proof can be provided in the event of an audit or reassessment. Otherwise, failing to keep additional copies can result in financial trouble if the originals become misplaced or damaged.
2. Use a Booking System
To maintain detailed records of the company’s accounts, owners should use a bookkeeping system. This system can vary depending on: the industry, a number of purchases, type of expenses, and personal preference which is why owners should try testing programs before deciding.
Regardless of the system that’s selected, every program should be able to track expenses throughout the year. Ideally, this system should organize expenses based on the month and include the type, amount, day and reason for the expense.
If owners are unsure how to begin bookkeeping its recommended to try a simple spreadsheet where expenses can be input or to purchase tracking software for it. Ultimately, without the use of these programs, owners may not be able to monitor their purchases which can result in overspending and misinformation.
3. Determine a Monthly Budget
Owners also need to determine a realistic monthly budget for the company. Without a monthly budget, owners won’t be able to allocate resources accordingly which can result in overspending, and lost profits.
To determine a monthly budget, owners should refer to their bookkeeping system. Over time, the data gathered on these systems can be used to create an average for a given month. In turn, helping to predict future financial trends for the company.
4. Understand Tax Obligations
Tax obligations can vary based on a variety of factors including the industry, type of company, expenses, and location. Therefore, owners will need to know their obligations to be able to allocate resources, funds, and budgets for the upcoming year.
Owners that are unsure of their expenses may be at risk of costly interest rates, added fee’s, frequent audits, and legal ramifications if they are not able to make required payments.
5. Check Accounts with Professionals
The final principle that all owners should follow is to have their accounts checked by a professional. This is an important step for owners to follow because a financial professional will be able to overlook, verify, and inform owners of any errors that could be impacting the company. Financial professionals can also help to gauge the amount owed on taxes, track expenses throughout the year, and develop an accurate budget to follow.
Without proper financial education, small business owners are at risk of misallocating the company’s funds. However, with the use of proper financial accounting companies are able to track expenses and prevent a loss. If you’re a small business owner that’s struggling to manage your expenses, consider speaking with a member of our team for a personalized assessment.
