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Navigate Change with These 10 Steps to Achieving Best Accounting Practices
Running a business is not limited to selling products or services and gaining revenue. It has become way more than improving all operations and getting people on board. Business owners often wear multiple hats while taking their business toward the ultimate success. However, a majority of them consider accounting one of the most demanding and daunting business processes.
As a business owner, financial management can become tough. It is because you may lack accounting knowledge or unaware of some of the best accounting practices. Therefore, in this article, we will discuss some steps to achieve the best accounting practices. However, before that, you must know how poor accounting can damage your business.
Imperfect Accounting Practices That Can Affect Your Business’s Financial Performance and Agility
If you do not keep up with income sources and expenditure/investments, you might fail to achieve the desired financial goals. This makes it challenging to meet overall business objectives. Here are some of the poor accounting practices that you must avoid.
Not Keeping Track of All Business Expenses: Wherever you are spending your business capital, not keeping track of expenses can lead to incorrect accounting books and inaccurate financial reporting, increasing an IRS audit’s chances. Lack of a proper accounting system in your business may be why you don’t keep track of all expenses.
Relating Profit with Cash Flow: You might be counting deals as income, even if the projects are still incomplete. This can turn out to be a big mistake if the projects take more time to complete. Counting income as profit right as it comes can give you a distorted view of your business finances, which might make its financial performance healthier than actual.
Not Separating Personal and Business Finances: It becomes almost impossible to track financial records if you don’t use sperate accounts for business and personal income and expenses. This thinking can be harmful to your business because if the IRS audits your finances, it will all be a mix-up of personal and business finances.
Not Storing Receipts and Notes: If you have a credit card that you use only for business expenses, its statement cannot be completely helpful in identifying transactions related to your business. The statement only shows the amount spent, and without receipts, you cannot validate an expense as a business expense.
Not Filing Taxes on Time: Business owners tend to remain busy, handling almost all business operations daily, and might not get enough time to focus on tax preparation. This often leads a business to late tax filing, and the more the delay, the heavy the fine you will be levied with. Moreover, there’s always a risk of an IRS audit due to improper/inaccurate financial information in the tax files submitted.
Accounting is a whole set of systematic procedures that accounting departments follow in recording business transactions. These processes must be handled by professionals because of the confidentiality and reliability of different business processes involved. Good accounting practices will help your business keep its financial condition maintained. Regardless of your business size and the flow of financial transactions, you should consider following the accounting practices below.
Best Accounting Practices You Must Adopt for Your Business
1. Get Familiar with Financial Statements
You might be having an in-house accountant or a staff member handling your accounting; in any case, you need to have the ability to read and understand your business financial statements, which are as follows.
- Balance Sheet – This will show your company’s total capital, liabilities, and assets at a particular point in time.
- Income Statement – This is also called the Profit & Loss statement, which shows expenses incurred and revenue generated during a specific period.
- Cash Flow Statement – This statement shows the detailed cash flow in your business (for instance, how much money is credited in and debited out of your business accounts.
These statements will help you be informed about your financial position at different times, which will further help you make better business decisions.
2. Have a Business Plan/Budget
A business plan and budget are essential to project estimation about the future expense and the revenue needed to run the business in the long run. It is vital to have a well-researched and well-documented budget for your business, especially when you need funding from external sources.
3. Have Different Accounts for Personal and Business Finances
You can avoid the stress of differentiating personal and business expenses in the year-end by keeping separate accounts for personal and business finances. This will help you keep your financial records organized; the cleaner the books, the lower the chances of submitting wrong information during financial reporting.
4. Consider Automation Tools for Invoicing and Invoice Processing
Take advantage of the technology trending in the accounting landscape. You can utilize e-payment methods leveraging automation tools, which ensure timely payments from users. Similarly, you can enroll your regular clients in e-invoicing portals to ensure you don’t miss out on any payment your company expects. This practice will ultimately help you prevent past due bills and un-accounted income.
5. Implement Strict Internal Controls
Producing and implementing a strict policy for internal financial controls at each stage of your business transactions will help you meet your financial objectives. These controls should include different parameters to ensure financial and accounting obligations and protect capital against wastage (for instance, accounting errors and financial fraud).
6. Plan Before You Purchase for Your Business
You might already be spending a lot on something that generates low or no direct value. Therefore, it is essential to make sure you purchase what is necessary for your business operations. Before you make a purchase, ask yourself – if it is going to be worth it?
7. Bank Account Reconciliation is Paramount
Reconciling your bank account on a weekly or monthly basis will ensure your records are maintained accurately. Make it a habit to reconcile your bank statements with receipts as soon as you can. The purpose of reconciliation is to ensure the balance in your books matches your bank account statement.
8. Monitor Accounts Receivable
Closing another deal with a client seems excellent; however, you must know that a sale or a service deal is not completed until you get paid for that. Therefore, monitor accounts receivable carefully and ensure you collect all the payments pending from your clients each month. This will not only add to your revenue but will also improve cash flow.
9. Don’t Wait for The Tax Deadline
Businesses have to pay both income and payroll taxes. Everything starts from keeping your books accurate by updating them from time to time. Also, review your books to detect mistakes and errors so that you get the best version of your financial reports. This will help you ensure you file taxes correctly and effortlessly, ensuring you pay all the taxes on time. Make sure you pay taxes at least a couple of weeks before the deadline.
10. Hire a Reliable Accounting Firm
Whether you handle your business accounts on your own or have an accountant, consider accounting outsourcing. Yes, in today’s fast business environment and tough competition in all industries, business owners often have less time to oversee accounting activities.
In such a situation, you can partner with a reliable accounting firm on your side to ensure your business accounting is streamlined and in compliance with essential accounting regulations. It is always advisable to choose a reputed accounting firm trusted by many.
As a business owner, your targets are clearly in front of you, and you might do everything to meet them. Considering that accounting is an integral part of your business, it becomes vital to carry out accounting operations. By following the above-described practices, you will be able to improve your business’s accounting agility and financial performance.
However, if you experience a shortage of accounting professionals in your company or lack accounting knowledge and expertise, you can leverage accounting outsourcing services from Cogneesol. We are one of the leading accounting outsourcing companies delivering quality services to our clients since 2008.
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