Small business owners have a lot on their plate – managing the business/innovating, cash flow management, taking care of staff issues, productivity, marketing, dependence on clients and retaining them, widening the client base, quality control, safety, and personal stress. Apart from these, you also need to stay in compliance with taxation and other financial regulations while keeping your books in apple-pie order. That’s a tall order by any standards.
Often, small business owners end up struggling to meet financial and tax deadlines, lagging in their payments, and having to shell out big money in penalties and fines. Studies have shown that 40% of small business owners find financial management to be the most difficult aspect of running the business, and that’s why it often gets pushed on to the back-burner.
The hard reality is that accurate and timely bookkeeping is the backbone of any business, no matter how big or small it is. This ensures the smooth running of the business and to also devise the right strategies as you move forward into its growth phase. It also informs you where your profits come from and where you are making losses. You can also judge where your expenses are higher than necessary, and what area requires more funds. Good bookkeeping is necessary to convince your investors that you are in control of things.
What Is Book-Keeping All About?
Financial accounting is a business essential that involves the preparation of financial statements regarding the performance and financial position. These statements give the general public, investors, creditors, customers, and suppliers an idea of how the company is doing, and they are also required by the country’s fiduciary authorities to stay in compliance with the regulations.
Statements may be prepared quarterly and/or annually. They include an income statement which describes the net income (Revenues – Expenses), a balance sheet which documents assets and liabilities, a cash flow statement that describes the passage of cash in and out of the firm, and finally a statement of retained earnings that shows the dividends paid out to shareholders and the amount retained by the company.
Bookkeeping and financial accounting standards are rigorously enforced by the FASB (Financial and Accounting Standards Board), and publicly-traded firms have to comply with additional requirements of the (SEC) Securities and Exchange Commission.
Tips to Clean Up Your Financial Audit Process
Statistics show that less than 1% of federal tax returns filed by small businesses were selected for detailed scrutiny. However, this doesn’t mean that small business owners can be complacent that they won’t come up for an audit. As a small business owner, it’s wiser not to take chances. Why not plan ahead to minimize the end of year stress and anxiety using the right strategies and tips, so you’re prepared for an audit at any time?
- Hire the right accountant: Whether you’re totally clued up on financial accounting, taxation, bookkeeping, etc. or you’re clueless about these aspects, it’s a smart move to hire an experienced, qualified, reputed professional accountant. This person would have respect tax regulations and laws, the highest personal and ethical standards, the requisite license to practice, and certifications in the areas of finance that he/she would be practicing. They can point you in the right direction and warn you when you go off course. They must be tech-savvy, understand modern technology and communication tools, and keep themselves updated on the latest amendments, regulations, etc.
- Keep Track of your Receivables: Don’t put off reconciliation of customer receivables and payments till they become too large and complicated to unravel. Trying to figure out your receivables can be time-consuming and frustrating when you’re close to the end of your financial year. You could end up wasting a lot of time, making mistakes, and overpaying taxes, so it’s a smarter idea to record these transactions immediately or weekly.
- Educate Yourself on Sales Tax and Fiduciary Obligations: Regulations vary from state to state, and it can be challenging to prove calculations from previous years/periods. If you can’t immediately afford the services of a tax professional yet, spend some time gathering the necessary information. Keep your books up to date and ensure that you get experienced help and find a financial advisor in Boise as soon as possible for the best results. They can also ensure that you file your returns on time, and warn you about the potential red flags that could attract a tax audit. This is an investment well worth making in the long term.
- Cash Expenses: You must keep a keen track of all the expenses that are connected to your business. Some businesses that have a larger volume of cash transactions such as beauty salons, restaurants, bars, building-construction, landscaping/gardening businesses, house-cleaning, etc. also attract audits because they are known to have a higher cash-transaction volume. You can maintain a separate asset account that tracks cash transactions both into and out of business. Save yourself the trouble with audit authorities by keeping a tight control on your cash expenses and income. Similarly, it’s important to log all your expenses carefully. Preserve all receipts related to travel, home-office expenses, meals/entertainment pertaining to business activity, business gifts, etc. Itemizing all these expenses carefully provides a good record of expenses that may otherwise be missed.
- Use Technology: Managing a very small business or a start-up in the initial stages would be easier in terms of accounting. However, as it grows, your accounting systems need to evolve in consonance with it. You may have to manage several different accounts and ensure that all transactions are recorded under the right heads. Make sure that you install the right accounting system software packages that meet your unique business requirements, preferences, and budget. Keep digital copies of all your receipts, and you can use a simple mobile phone app to scan your receipts and download them later into your accounting system. Shift to paperless systems that use cloud technology and select one that’s specially designed for your business. This allows you to compress and condense all your accounting work, making it easy to use and access.
Finally, it’s important to review and re-assess your accounting processes regularly to ensure that they’re performing in sync with your business goals and whether they’re effective and/or need to be updated.