Registering your business is a tiresome process, but as an Entrepreneur, this is actually one of the easier, if not the easiest, parts of building your empire. The “real” work is strategizing and coming up with business plans, determining goals, and making sure these things are on track and hit the target. For a lot of people, what appeals to running a business is the fact that you are your own boss. While that much is true, you must also keep in mind that a smooth-sailing business requires just as much in investing time and effort.
A lot of Entrepreneurs agree that accounting or financial management can be the most intimidating task of running a business, unless you’re an Accountant by Profession, of course. And yet, accounting or financial management remains an integral part of running a business. Luckily, there are certain accounting practices that will help you run your business smoother:
1) Know Your Numbers
To familiarize yourself with elements of your financial statements–balance sheets, income statement, and cash flow statement–is imperative, whether or not you have an accountant taking care of these for you. At any given moment, these essential financial tools will keep you informed about your business’ financial position and will help you make sound and logical business decisions. Here’s a quick review of what these elements mean:
- Balance Sheet – reflects your company’s total assets, liabilities and capital for a specific time frame
- Profit & Loss or Income Statement – shows your company’s generated revenues and acquired expenses
- Cash Flow Statement – shows details of the inward and outward as a result of company operations, investments, and financing activities
2) Have a Strategic Business/Budget Plan Ready
Keeping a strategic business plan will prove helpful in projecting and estimating future expenses, as well as the necessary income/revenue needed for sustaining operations. Moreover, a business plan is vital when seeking external funding from investors.
3) Decide what accounting method you will use – Cash Basis Method or Accrual Method
The nature of your business determines the necessary accounting method it needs to thrive:
- Cash Basis – in this simplest form of accounting, revenue is recorded whenever cash is received, and expenses are documented whenever bills are paid
- Accrual Method –revenues are recognized and recorded when earned, whereas expenses are recognized and recorded when consumed or when an invoice is received. It is important to note, that revenues and invoices don’t have to be paid before recording them in your books.
4) Separate business and personal expenses
You should never declare personal expenses as a legitimate business expense since this will distort your company’s true financial performance, and a vague picture of your enterprise’s financial standing may also drive away potential investors. You have to remember that transparency breeds honesty, and that as long you keep your books clean, tax authorities will not have any reason to penalize you for perpetually presenting a clean audit.
5) Automate payments and invoicing
Electronic statements of account, e-payments, e-invoicing, and online banking are just some of the countless ways current technology can help you keep better track of your finances
6) Identify and strictly implement internal controls
It is vital that you implement internal financial controls at a very early stage of your business as this helps you monitor and achieve set financial goals. Setting these up early on also allows your company to determine best practices and better adapt to crisis control and overall management.
7) Plan your purchases
Follow this golden buying rule: “Will my business benefit by making the purchase?” and remember that something your company doesn’t need is always expensive, no matter the cost.