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Financial management is critical for the successful operation of small businesses and Certified Public Accountants (CPAs). Bookkeeping and accounting are two integral components of their financial management.
For companies to operate efficiently, you need systematic recording, organization, and analysis of both the inflow and outflow of financial transactions. These processes help businesses make informed decisions and ensure the company complies with all the legal and regulatory requirements.
With this blog, we will share some practical accounting and bookkeeping tips for small businesses and CPAs that can directly impact their overall financial health and success. While these bookkeeping tips for small businesses have been carefully curated with small businesses and CPAs in mind, they can easily be applied to any business to improve their overall financial management. So, feel free to use these bookkeeping tips for small businesses for your business as well.
Tip 1: Set Up A Solid Bookkeeping System
For small businesses and CPAs having a robust bookkeeping system is critical as it will allow them to maintain financial records and make informed decisions. You need a well-organized bookkeeping system that records financial transactions systematically for future reference and keeps a holistic view of expenses, income, and overall financial health.
If you want to set up a solid bookkeeping system, you need the right accounting software that aligns with your business needs and size. When selecting the accounting software, you must select a feature-rich software that supports invoicing, expense tracking, bank reconciliation, and financial reporting. Some of the popular accounting software that can help you achieve all that include:
- QuickBooks
- Xero
- FreshBooks
- Wave
Tip 2: Track Income and Expense
Tracking income and expenses is crucial for maintaining transparent financial processes. Having proper expense and income tracking allows you to have a record of exactly what your income sources are, where your money is going, and if there is an opportunity for cost-saving; income and expense tracking allows you to grab it. An excellent way is to have a dedicated business bank account.
For small businesses and CPA firms, it’s essential to keep personal and business expenses separate. Also, always maintain an orderly record of all your receipts and invoices; you can do so digitally, but make sure you have multiple copies of the same stored at different locations to be cautious of any potential data corruption or crashes.
You must also regularly reconcile your bank, credit card, Etc. Statements with your banking account records. This process will ensure that all your expenses are accounted for accurately and separately. You can do so using any accounting software or by partnering with one of the accounting and bookkeeping service providers.
Tip 3: Understand Financial Statements
As a business owner, big or small, you need to understand financial statements clearly. It is imperative for your economic well-being as these statements offer a snapshot of your company’s financial position at any given point. For any business, there are three critical financial statements that you need to understand. These are:
- Income Statement: This shows the overall income for the business in terms of its revenue, expenses, and resulting net income, or net loss, for any given period. In general, enterprises track it monthly, quarterly, or annually. It helps the company assess its performance during that period and make necessary changes.
- Balance Sheet: The balance sheet provides the business’s financial position through its liabilities, equity, and assets. It also is tracked monthly, annually, or quarterly, depending upon the business need.
- Cash Flow Statement: The cash flow statement provides valuable information regarding the cash generated by the company over a given period. It allows the business owner to assess the company’s cash generation ability for that given period and gives an insight into its cash management practices.
If you are a small business owner or run a CPA firm, you must understand these financial statements to make informed business decisions. These statements will not only help you analyze the data clearly but also will help you gain insights into the financial position of the company.
Tip 4: Manage Accounts Payable and Receivable
Managing accounts payable and accounts receivable is crucial for having a healthy cash flow and financial stability for any business. While accounts payable refers to the money the company owes to its various suppliers or vendors, accounts receivable gives you a clear picture of the money your customers or clients owe you. Here are some valuable tips for effective management of your accounts payable and receivable:
- Set up clear payment terms for all your suppliers, vendors, customers, or clients
- Track due dates on all the bills and invoices
- Build an approval process
- Always negotiate payment terms
- Leverage electronic payments
- Avail any early payment discount you can
- Build healthy supplier relationships
- Create clear credit policies
- Perform credit checks
- Issue invoices promptly
Effective accounts payable and accounts receivable management allows businesses to optimize their cash flow, minimize financial risks, and maintain healthy relations with their customers and suppliers.
Tip 5: Budgeting and Forecasting
For businesses to establish financial goals, they need stringent budgeting and forecasting processes. These processes allow them to make informed decisions involving future expenses and incomes based on historical data and market trends. Here are some helpful forecasting and budgeting techniques that you can benefit from:
- Historical Data Analysis: You must use the historical income and expense data to predict or identify any patterns. This will help you create accurate forecasts and budgets.
- Zero-Based Budgeting: You must start all your budget cycle from scratch. This technique will give you a detailed evaluation of your expenses and ensure that each cost involved in your budget is justified. This is an excellent tip for any business, new or established.
- Incremental Budgeting: Incremental budgeting is adjusting the previous budget based on expected changes due to increased cost, inflation, or planned expansions.
- Sales Forecasting: When doing sales forecasting, you must consider historical data. This data can be in the form of customer behavior, market trends, or any relevant factor associated with your business.
Using these budgeting and forecasting techniques, any business can quickly build a realistic financial plan to improve resource allocation and navigate uncertain economic conditions.
Conclusion
Finally, while we have listed these accounting and bookkeeping tips for small businesses and CPAs in mind, you can use them for your financial management as well. And if you are a CPA looking to partner with an accounting and bookkeeping service provider, write to us at: [email protected], and we will have our experts reach you.
