Best Accounting Practices
The ability to manage a company’s finances is critical to its success. While almost every firm must keep a close eye on its assets, liabilities, income, and cash flow, these accounting processes are essential for small to mid-sized organizations as they scale.
Accounting is documenting, arranging, and analyzing financial information for a business. Companies that are publicly traded must follow generally accepted accounting principles (GAAP), which are a set of standardized accounting best practices established by the Financial Accounting Standards Board.
When running or beginning a business, one of the first things you should do is ensure your accounting system runs as smoothly as possible. Specific accounting techniques will ensure that this occurs.
Update your chart of accounts.
The chart of accounts is the first step in small business accounting. All of the accounts and their descriptions are listed in the chart of accounts. Many organizations, however, need to develop more account types to generate relevant accounting reports.
You need to examine and update your chart of accounts regularly to avoid having erroneous accounting records.
Payroll should be outsourced.
Outsourcing payroll is one of the accounting best practices for small firms. Outsourcing payroll to a payroll service business may also provide benefits outsourcing. Payroll regulations are substantial and must be strictly followed. Small firms may need more in-house knowledge to ensure payroll accuracy and regulatory compliance. Employees are upset if payroll is not processed on time, payroll taxes are not submitted on time, and fines may apply.
Organize financial data and statements.
Small businesses should retain consistent and accurate accounting records since they are frequently compelled to utilize their financial statements and records to file taxes, request loans, or seek new investments.
A small business keeps three critical financial statements on a fundamental level:
- Income statement
- Cash flow statement
- Balance sheet
Keeping track of receipts, invoices, and bank account statements will help you keep these records more precisely.
Use Accounting Software
Early in a company’s existence, you may be tempted to cut expenditures on bookkeeping by employing physical ledgers or simple digital tools like Excel. Don’t do it. Stay away from the temptation. This is not one of the places where a company should search for cost savings.
Adopting accounting software early on will help you prepare for a moment when things aren’t as straightforward. Cloud-based accounting software may help you avoid costly human errors, ensure that your records are all the time accurate and up to date, simplify tax filing, speed up your month-end close, and, most significantly, give you sophisticated analytical tools to generate actionable insights.
Focus on Cash Flow
Businesses that prioritize correctly excel in cash flow management. They predict cash flow for short- and long-term corporate goals and budgets. These businesses keep a regular eye on cash, aged accounts receivable from the accounts receivable cycle, accounts payable balances, and vendor invoice due dates to expedite collections and make timely payments to receive early payment discounts wherever possible.
They understand when they need loans to boost their financial freedom and pay expenses. They also use discounted cash flow analysis and project rating to evaluate proposed projects to see if the returns are justified.
Create a procedures manual.
A written procedures manual is crucial when your company grows and additional staff are hired. This manual should include all of your company’s regular duties, not just accounting functions.
A procedures manual describes how your company operates and avoids uncertainty. The guidebook is also an excellent training resource for your employees.
Budget and forecast
Budgeting and forecasting entail defining your present business budget and estimating future requirements. Making realistic budgeting and anticipating future cash flow reduces the likelihood of having to pay unexpected bills. If you have unforeseen costs that you did not budget for, you may have to take out loans to cover them. As a result, proper financial planning can save your company a lot of money in the long term.
As a firm grows, business executives eventually reach a tipping point where maintaining accurate accounting records becomes too complicated and time-consuming for individuals to manage, even with accounting software. At that point, it is vital to hire an expert whose sole responsibility is to log, arrange, and evaluate the company’s financial records.
Employing a professional accountant in-house or an outsourced accountant gives you access to a skilled professional.
Establishing best accounting practices in your firm to properly structure accounting and finance is critical to resolving potential accounting issues. Establish solid internal controls and efficient accounting methods as soon as feasible to prepare for current bank loans.
You want to avoid delays caused by rectifying remedial accounting errors in the income statement, balance sheet, and cash flow statement produced by insufficient bookkeeping and business finance software systems. When it offers value at a reasonable price, consider using outside payroll, accounting, and finance services.