For those looking to start new businesses, managing finances can seem daunting. Should you sign up with an accountant? Hire someone part-time or even full-time? How do you choose from the vast number of software options out on the market? In this selection of accounting tips for new businesses, we aim to not only help you answer those questions but explain how the latest technology can help.
Keeping track of expenses and income together seems like an obvious first step, but there are other considerations that need to be made as well.
Here, then, are five accounting tips for those looking to start new businesses:
- Keep detailed financial records
- Organise and hold onto receipts
- Automate manual processes if possible
- Separate personal and businesses expenses
- Use accounting software
Keep detailed financial records
Organising and maintaining pristine financial records seems like an obvious tip, but it’s easy to get bogged down in the running of day-to-day operations and let it slide. It’s imperative that every transaction is logged and can be found when it comes time to file taxes and document deductible expenses.
This will also give you insight into your cashflow. And bear in mind that negative cashflow is a key reason why one in two businesses fails within five years.
You may be tempted to keep a tally in Microsoft Excel. Well, don’t. Modern accounting software not only makes it easy to keep track but also gives business owners peace of mind that all of their financial data is safe and intact. Most accounting software designed for small businesses is now based in the cloud, but it’s smart to create backups of all your information an external drive.
Read our article on the top five pieces of accounting software for startups to get a sense of which product to choose. But we’ll come back to this at the end.
Organise and hold onto receipts
Receipts used to be a pain. Not anymore. Choose one of those software packages mentioned above and you will discover that it has a receipt-capturing tool built in: snap a photo and it will be automatically scanned and stored.
But sticking to the principle of having a physical backup, don’t throw the paper receipts away. It’s paramount for budding organisations to store all receipts related to their business purchases in a secure place. In the United States, the Internal Revenue Service mandates that businesses maintain their records for at least three years, although it may be prudent to keep records and receipts going even further back.
Much like the first tip, digitising receipts can be an important time-saver for business owners looking to better classify their expenses in case a receipt is needed later. For those looking to either back up or keep paper copies of receipts, creating individualised folders can assist with organisation as well.
Automate manual processes if possible
It’s arduous and time-consuming enough to run a business. You really don’t want to spend much time organising your financial records and receipts. Therefore, if you can digitise and automate your business processes then you should do so.
The good news? It’s never been easier to streamline business processes by using automation. For example, a business can use invoicing software to generate billing documents instantly, and automatically send them to customers within 48 hours of a sale being finalised. You can also automate sending regular invoices.
Using modern invoicing software can allow business owners to focus on operating the daily tasks associated with a business, and be less worried about potential errors when it comes to billing clients for goods or services.
In addition, you can use invoicing software to send billing reminders and late notices to buyers who haven’t quite got round to paying your invoice yet…
Separate personal and businesses expenses
It’s tempting to combine both business and personal expenses. Don’t. It may be more difficult than it seems on the surface to separate items such as business expenses and tax deductions from that of a personal account. All you’re doing is adding to your headache when tax season rolls around.
One key recommendation — and if you haven’t done this already, then we recommend you look into it right now — is to set up a separate business account with a financial institution. This not only separates the profit and loss from an owner’s personal expenses, but also mitigates legal liabilities from any debts the business may incur. It also cleanly separates business expenses from those incurred by an individual.
Another suggestion? Get a business credit card. This allows businesses to organise any expenses on one account rather than wading through a person’s individual transactions to find one specific enterprise-related expense later on. It also enables you to see your cashflow, with no hidden gotchas.
Use accounting software
Okay, this has been a common thread throughout this article, but we really can’t emphasis this enough: use digital accounting software.
In short, this will help you balance profit and loss, control expenses, and give you actionable insights into your financial situation. You only need to read our piece on the best accounting software for startups to see the benefits of using this type of technology. This ranges from integrating with a workforce management platform to automating your employees’ payroll to generating easy-to-read balance sheets.
Organising a business’s information to this extent can assist with business functions such as forecasting future expenses and costs. And finding areas where the business may need to cut back spending later on.
In addition, there are several options to choose from when deciding on accounting software. Smaller startups can opt for free, barebones, accounting software, while owners needing more assistance in keeping the books organised should opt for more expensive accounting software with a robust set of features.
The amount of choice a business owner has in selecting a piece of accounting software can be staggering on the surface. But, once you have identified the specific needs for your enterprise, you can work out how much it’s worth spending on accounting software. And at this point, the huge selection of such software becomes a blessing for owners and their businesses.
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