Accounting For Small Businesses: 7 Ways to Save Money And Be More EffectiveWritten by Ana Mladenovc on May 31, 2021
Small business owners are frequently forced to wear several hats to keep their business up and running. Usually, due to a tight budget, and a pressing demand to save as much money as possible, they have to joggle between different operational and administrative aspects of a business. That’s why they usually end up doing the things they signed up for the least.
Some of the tasks that usually fall on their shoulders include brand management, talent acquisition, maintaining good relationships with clients, but as well keeping track of the business’ profits and accounting.
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Accounting for small businesses can seem complicated and tough to the unskilled eye, and its improper management can damage the company’s survival in the harsh and overly competitive market. The consequences can be so grave, they can even lead to business closure.
With that being said, we decided to provide you with seven ways you can save money on your small business accounting, become more effective, and effortlessly scale your business.
The Most Common Small Business Accounting Mistakes
But, before we dive in and give you our seven best tips for accounting for small business, let’s see what are the most frequent accounting mistakes small businesses make.
Poor Cash Flow Management
Managing cash flow is one of the most common accounting mistakes small business owners make. By the data, more than 80 percent of businesses fail due to poor cash flow management.
That said, small business owners should track their cash flow and expenses promptly, make a habit to write them down regularly, but as well have a budget plan in place to avoid overspending. There are various software solutions that can help in this process, but a simple Excel sheet will do the job, in case there isn’t a possibility to purchase the software solution.
Many businesses fail or experience hardship due to unforeseen expenses. For instance, your business might get sued, and losing the case can come at a hefty price. Even the smaller unexpected costs can damage the business gravely and that’s something every small business owner should be wary about.
To prevent this from happening, small business owners should make a clear and detailed budget plan at the beginning of every fiscal year, and leave room for potential unforeseen expenses, that will help them avoid going into unnecessary debt.
Improper Tax Calculation
Even though every business has to pay taxes, tax deductions can really make a difference. However, to know which tax deductions apply for your business you usually have to have an experienced professional beside you, to help you apply for it.
To prevent this from happening to you, a good option would be to outsource your accounting or hire a part-time accountant to help you along the way. Even though it’s an additional expense, it’s a justified precaution that pays off in the long run. Especially if it helps you avoid paying hefty fines imposed by the state.
Small businesses usually operate on a tight budget, and hiring an HR professional or a payroll expert can be off-limits for many.
However, managing payroll without having the right expertise can cause hefty penalties that could potentially put you out of business. As we said before, outsourcing accounting and payroll or automating the process by purchasing dedicated software is a justified expense that can greatly help in this case too.
Improper Financial Analysis
Proper analysis is the backbone of every business, and it should be widely used across departments.
When it comes to financing and accounting, it’s important to remember there are three stages in making a good financial decision: interpreting, analyzing, and advising.
That said, you should always gather the numbers, analyze them to improve, and based on these insights lead yourself to the best decision you can make for your small business.
How To Save Money On Small Business Accounting?
Now, when we briefly went over the most frequent small business accounting mistakes, let’s get over to tips that will help you save money on small business accounting and allow you to be more efficient.
Tip #1: Make a difference between your personal and professional expenses
Separating your business and personal bank accounts can save you a lot of time (and money) while managing deductible business expenses. And in case you’re aiding your business with your personal money, make sure to document the process.
Furthermore, having two separate bank accounts can help you limit your exposure to business debts, in case you’re in charge of a limited liability company.
Generally, you cannot deduct personal expenses on a business tax return, and the penalty for it can go up to 75% of the additional tax amount owed.
That said, make sure to follow through this advice, to avoid overspending and endangering your personal and business finances.
Tip #2: Track expenses
Another way of saving money on accounting for your small business is to track and categorize each expense your business makes, as well as the cash flow to make the most out of the tax write-offs and credits.
A useful tip you can use to be more effective later on is to use only your business credit card for business-related purchases to save time on sorting paper receipts.
In case when cash is the only option, make sure to file digital copies in your accounting software or a dedicated folder on a drive. There’s also a wide array of affordable software solutions that can help you automate this process.
Tip #3: Be adamant about when you’re updating your books
If you want to save time and be more efficient when doing your small business accounting, make sure to book some time every week just to sort out the necessary paperwork.
Making a habit to check and sort out paperwork will also prevent mistakes, which can frequently happen during the tax season when we are usually in a rush to finish everything on time.
Tip #4: Establish a payroll system
Processing the salary and calculating payroll taxes isn’t as easy as it might seem at first. What’s more, it’s a very sensitive task that should be assigned to specialized professionals.
If you’re managing it yourself, you need to be sure you’re applying the right taxes, but as well that you’re making timely payments to the state on the behalf of your employees.
To do it efficiently and minimize mistakes, make sure to establish a payroll system that will help you fulfil these obligations in the right way.
A good way to do so would be to use payroll software, as it can help you automate this process without paying the salary for the accountant.
Tip #5: Watch out for liabilities.
Not taking proper care of the liabilities of your business can be the sole reason for its failure.
To avoid this from happening to you and your small business make sure to separate loans and borrowed funds from your current assets, know what you own and what you owe. But, most importantly, educate yourself on laws and practices to make more informed decisions.
Tip #6: Make a budget for larger expenses
As a small business owner, you shouldn’t leave anything to come as a surprise.
Generally, larger expenses come during slow months and you should prepare for them ahead of time, to avoid being stuck in an unfavourable financial situation.
Furthermore, you should count on equipment replacement and computer upgrades, and leave room in your budget for it ahead of time. This can both save you money in the long run, and help you avoid debt you’ll struggle to repay.
Tip #7: Follow up on invoices
Sending invoices doesn’t mean you’ll get instantly paid. You could avoid overpaying on taxes and receivables just by circling back to customers and vendors that owe you money.
You should send invoices right when the job’s done, to speed up the payment process, and send friendly reminders to those who are late with payments. You can even offer early payment discounts to incentivize your customers to pay quickly.
InvoiceBerry can automate this process for you by allowing you to easily keep track of your client’s payments, automate your recurring invoices by scheduling them in advance, and even reminding your clients about missed payments.
We understand that small business owners might be reluctant to purchase a product before they know what benefits it can bring to their business. That’s why we offer the possibility to sign up for a free trial and try out the software before switching to a paid version.
Bonus tip: Keep inventory records
If you’re running a brick-and-mortar store, then you should be wary of the theft. By some estimates, theft damages US business for over $50 billion each year.
That said, it’s important to keep a detailed inventory of your records, writing down dates when the item is purchased, stock numbers, sale prices, and so on.
A good idea would be to employ inventory management software that could help you streamline this process and avoid mistakes that could lead to money loss as much as possible.
Wrapping It Up
Accounting for small businesses is no small feat. However, knowing these tips and tricks, and having the right strategy and resources on your side, you can learn how to increase your profits while decreasing the liability of your business.