Valuable Accounting Tips for Business OwnersBrian Jang ON July 14, 2021
For many business owners, business accounting can be an unpleasant distraction from what they see as the actual running of their company. Following some best practices can help to streamline things and make your accounting a bit easier to handle.
The Importance of Business Accounting
It doesn’t matter how large or how small your business is; business accounting is an essential part of it that lets you keep track of your company’s financial information by recording all income and expenses. This will allow you to create invoices, perform payroll, and file your taxes.
Business accounting involves tasks that need to be completed on a weekly, monthly, quarterly, and annual basis, which we will discuss below.
There is only one real task to be completed each day, and that involves checking your cash position to know how much you have available. It is useful to also be aware of upcoming expenses and how much money you expect to come in during the coming weeks and months.
Weekly Accounting Tasks
This is where things pick up a bit. You have more to keep track of on a weekly basis and this is where you will benefit from having a great accounting system.
- Record Your Transactions. Every transaction should be recorded, including customer billing, receipt of cash, and paying vendors. Depending on the volume, you may prefer to do this daily. Recording this information in a spreadsheet is possible, though you will benefit more from using accounting software designed for small businesses.
- Record and File Receipts. Keep a copy of each receipt and cash payment. Be organized in your record-keeping by filing receipts and bank statements by month. Consider using accounting software that allows you to scan paper receipts, eliminating the need for physical files.
- Pay Vendors. Keep a file of “unpaid vendors” that includes billing date, amount owing, and due dates. Some vendors will offer discounts for early payment, and you will want to take advantage of that. At a minimum, pay on time to avoid late fees.
- Prepare Invoices. Your invoices must include payment terms. Typically, payment on invoices will be within 30 days. Failing to include a due date makes it difficult to predict your revenue each month.
- Monitor Cash Flow. This is a vital part of your business, particularly during your first year. You will want to be able to predict the cash you’ll need over the coming weeks and months to ensure that you have enough money on hand to make payments. Properly managing your cash flow also gives you the insight needed to make informed spending decisions.
Monthly Accounting Tasks
Several tasks will require your attention every month:
- Balance Your Chequebook. Review your transactions to ensure accuracy. This will help you catch any discrepancies or errors earlier rather than later, allowing you to correct them.
- Review Past-due Receivables. Keep a record of all past due accounts. It is a good idea to send reminders to those with outstanding balances at the start of the month. Review this again at the end of the fiscal year to determine if you need to send accounts to collections or write them off as a deduction.
- Analyze Inventory. By reviewing your inventory (if any) regularly, you will be better able to adjust maintain proper amounts by ordering more of what is moving and discounting or writing off what isn’t.
- Manage Payroll and Tax Payments. Be sure to meet all payroll requirements on schedule. Review the payroll summary before making payments to avoid having to make corrections during the next pay period. Alternately, engage a payroll service to handle this aspect of your business for you.
- Review Profit/ Loss. Your profit and loss (P&L) statement for the current month and year-to-date should be reviewed and compared against your monthly or quarterly budget to see if you are overspending or under-spending. If you have not prepared a budget yet, you can also compare versus the same period last year.
- Review Month-End Balance vs Prior Period. It is useful to compare your balance sheet against an earlier period to analyze how you are managing your assets and liabilities. Try to analyze significant changes to determine what they signify.
Quarterly Accounting Tasks
Accounting tasks that are handled quarterly focus on some of the major components of running your business. They also highlight the need for a proper accounting solution.
- Prepare a Revised P&L Estimate. This is when you will start to see how much money you are really earning. It is also the time when you will spot troublesome issues as you review your revenue, expenses, and the ways you are spending your profits.
- Manage Quarterly Payroll. Review your payroll processes and data to ensure accuracy and to satisfy tax requirements. Again, this may be best left to a professional payroll service.
- Review Sales Tax. Ensure that sales tax is being applied correctly and that federal and provincial requirements are being met to avoid penalties.
- Estimate Income Tax. You can review your year-to-date P&L and make some estimates regarding taxes that will need to be paid, consulting your tax accountant as necessary.
Annual Accounting Tasks
It all comes down to the end of the year and the annual tasks to be completed.
- Past Due Receivables. As you have been doing monthly, it is time to look at the past-due receivables and decide if you think any will be eventually paid, or if they need to be written off for a deduction.
- Review Inventory. Any items that have not sold become a deduction on your year-end taxes. Failing to write down unsellable inventory can mean paying additional taxes that you don’t actually owe.
- Review Year-End Financial Reports and Tax Returns. As tax time approaches, review the full-year financial reports for your company before passing them along to your accountant. Don’t sign your return until you verify accuracy.
This can be a great deal of information to take in, but accurate handling of your business accounting is an important matter. For more information, contact us today. One of our expert team members will be glad to answer your questions.