Best Accounting Practices for a Successful Small Business

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In an ideal world, a great business would mean that you get to do what you love best—pursue exciting new projects, maintain great relationships with your clients and employees and steadily grow your profits. However, in the excitement of doing what you love, don't lose out on the second quadrant of Covey's matrix—the important but seemingly non-urgent task of building great accounting practices for your small business.

Most small businesses tend to ignore the accounting function until the nth hour—that is until it becomes virtually impossible to ignore. Others spend an inordinate amount of time pursuing every little detail and pushing their employees to do the same.

So, what is the right approach? Enjoy the ride until you absolutely have to step off and take care of the bills, or lose the joy of the job under a mountain of bills? The key is to take time and start right by setting in place certain best practices. This will ensure that the practice of accounting becomes part of your organizational DNA.

Here are some tried and tested accounting practices from small businesses:

1. Keep separate accounts for business and personal needs

If you haven’t already done so, ensure that you open a separate savings account for your small business. When you’re employing only a few employees (or none at all), a separate account can seem inconsequential. However, a separate bank account is the first step towards building healthy and transparent accounting practices. As your business grows, a separate account gives you clarity on what your venture has earned, your business expenditures, your profits and so on. When you make purchases for your business, ensure you do so from your business account as it will help you claim tax benefits.

2. Communicate accounting principles and financial policies

Regardless of the number of workers you employ, put together a finance policy that everybody adheres to. For instance, a policy that insists on settling reimbursements within 10 working days could help you keep a tighter check on the expenses accrued by the company, while a policy of dual controls for processes involved with making or receiving payments can help increase internal control. Communicate these protocols openly and implement it systematically.

3. Choose the right accounting method

Most small businesses account either through the cash method or the accrual method. For cash basis accounting, you will need to jot down the revenue only after the actual cash exchange. This method is generally used by businesses that do not manufacture or stock products. The accrual method involves making an entry on the day when your small business makes a sale or incurs an expense, regardless of when the actual cash exchange takes place

4. Regularly backup data

Computer crashes, natural disasters or unforeseen accidents can wipe out all your financial records, robbing you of several years of data. Prepare for such eventualities by scheduling routine backups of your financial data.

5. Consider hiring a part time or freelance accounting professional

While your small business may not require a full-time accounting professional, you may want to consider hiring someone on a freelance or consulting basis. Not only will this ensure tax readiness at the end of the financial year, it will save you from oversights. A professional will help keep your records up-to-date, advise you on loopholes and instruct you on potential fees or tax deductions. A part-time professional can also help formulate long-term accounting principles for your company by advising you on how best to maintain your accounts payables and receivables.

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