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What Are the Best Practices for Small Business Accountancy?
If you recently started a small business, accepted responsibility for taking on and improving the accounting for one, or you’re planning to start one in the near future and you want to be ready, there are some things you should know from the start.
Here we’re going to briefly cover the best practices in small business accounting. These will be helpful for you whether you go it alone or decide to outsource your accountancy services.
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Mark Your Deadlines in Your Calendar
Set a reminder for all records submissions on your calendar. Make sure that reminder will fire far enough ahead that you can all the work done you’ll need to do. Missing a deadline is costly, and as a small business that’s an extra expense you don’t need.
Keep Taxes in Mind
The single biggest problem new businesses often run into is that, spending as they go, there isn’t always enough to handle the tax bill when it comes time to pay. Be aware of the tax obligations of every invoice you raise, and make sure you have the cash set aside to pay when it comes time.  As tax accountants, we know just how complicated this can be, especially as tax legislation continues to change.
Don’t just take your tax obligations into account – make sure you track deductions and tax efficiencies, too. While you should err on the side of caution in how much you set aside, knowing when your tax bill will be reduced helps free up some of that cashflow. Which brings us to our second best practice.
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Cash Flow is Key
If not being able to pay taxes on time is the biggest problem new businesses face, failing to manage cash flow is the most dangerous, especially for smaller businesses. Cash flow – your liquid assets – is how you pay your ongoing expenses, including any employee wages, supplier invoices, etc. Not being able to pay on time is a small business killer.
Your cash flow statement is one of the most important financial reports for understanding the health of your business. It tracks cash flow in and out of the business over time, giving you a clear understanding of specific business expenses and revenue streams.
Update Frequently, Review Regularly
As well as your cash flow statement, you’ll want an income statement and a balance sheet at the very least. Taken together, these three reports give you a clear understanding of your business’ success. You can use them to identify suppliers you can’t afford, customers who take too long to pay, and understand the real value of individual products and services you offer – all information you’ll want to act on.
Of course, these reports are only valuable for that if they’re up to date and correct, and the longer you take to update your finances, the more inaccuracies creep in (and the longer a job it is each time). Good accounting software makes this process quicker and easier, but it still takes time and focus.
Quite how often you need to update your books will vary from business to business, but in our experience most businesses handling their own accounts should be updating their information more frequently.
We also recommend you set aside some time at regular intervals to look over the reports and check for anything you might have missed, whether you think you need to or not.
You’ll want to automate as much as possible, from using purpose-designed software (while it’s technically possible to maintain your accounts in Excel or Google Sheets, for practical purposes it isn’t) to sending invoices automatically – not only does this save time, but if your various systems are connected, you reduce the risk of human error.
Automation is great, but it still needs double-checking. Any errors that do creep in tend to go overlooked.
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Reconcile Your Data
If you have one central set of records, you can easily find the right figures. If you have two disconnected documents, the moment there is a discrepancy you have extra work to do to figure out which needs to be corrected.
Unfortunately, your bank records and your accounting records aren’t a single central set. The process needed to keep the two up to date is called reconciliation. This involves matching every transaction in your bank records against your books. If there are any which are missing from your books, they need to be added in.
If there’s anything in your accounting records that you don’t see in your bank statements – why? Most likely you’ve discovered an invoice that hasn’t yet been paid, which will need chasing up.
We also recommend reconciliation be done regularly. Quite apart from the amount of time it’ll take if you let it build up, it’s a lot easier to remember the details of anything odd if it only happened in the last few weeks.
Small Business Accounting Takes Time
As we mentioned above, small business accounting takes time and focus. You’ll need to pay attention not just to your incomings and outgoings but also to any financial regulations or legislation that’s relevant to your business.
If you can handle your accounts in-house, that’s great – just follow these best practices to help you catch issues before they become problems.
On the other hand, if the problem is your time budget, we’re here to help. Get in touch and we’ll be happy to discuss your needs.
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Email: office@tr-w.co.uk
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