accounting tips for small businesses

Accounting remains a key but often overlooked aspect of running a business, while this discipline extends far beyond filing an accurate tax return every financial year.

In fact, efficient accounting can help you to create a more cost-effective business operation, particularly in terms of minimising costs and optimising profitability over time.

However, it’s thought that around 60% of businesses aren’t happy with their existing accounting process, while smaller firms may also find financial management particularly challenging. 

Keep Personal And Business Accounts Separate

When starting out as a small business owner or transitioning from a sole trader to limited partnership, it’s important that you look to separate your personal and business accounts.

Of course, it’s often more convenient to use a single bank account for all incomings and outgoings, while sole traders often use their personal account to accept client payments.

However, this can make effective accounting incredibly challenging, not least because you’ll have to sift through a huge number of personal and professional transactions when completing your annual self-assessment and filing your tax return.

So, separating your finances definitely represents a more organised and logical approach to managing your company accounts, particularly as it helps you to save time and focus your efforts on more rewarding and generative activities.

It may also make it easier to monitor your business’s spending habits in relation to earnings, while highlighting potential opportunities to reduce costs and save money over time.

Embrace Invoice Financing As And When Required

It’s often said that cash flow is king in any commercial operation, with this referring to the total amount of money being transferred in and out of a business during a specified time-frame.

This certainly impacts the long-term success or failure of a business, with some 82% of ventures ultimately failing due to poor cash flow management skills or a failure to understand how this concept impacts on a company’s wellbeing.

Optimising cash flow is also a key focus of accounting, as you can use your receipts and documents to accurately track transactions and gauge just how well your business is performing in this respect.

In some instances, you may find that your business is struggling to maximise cash flow, often due to delayed payments or extended invoice terms of 60 or 90 days.

In order to resolve this, you may want to consider the benefits of invoice financing or factoring. 

With the former, you’ll accept an advance on selected invoices, while using these as financial proof that you can repay the lender. With factoring, you’ll effectively sell your total accounts receivable to a third party, although this requires you yield control over some of your accounting in the process.

GRENKE’s detailed invoice financing guide breaks down this information further, which may help to make a more informed decision about how to manage an inadequate or disrupted cash flow.

Regardless, invoice financing and factoring remain highly effective accounting tools, especially for small businesses and startups that have to deal with challenging invoice terms.

Create A Clean And Efficient Reporting Process

If you’re to fully get to grips with accounting, it’s important to maintain neat and accurate records over an extended period of time.

Once again, this means that you spend less time searching for specific transactions or records, while it also enables you to delegate accounting tasks to key stakeholders within the organisation as and when appropriate.

It’s also important to consider the potential impact of future audits. Whether you’re subject to an external audit by HMRC or want to carry out an internal inspection of your financial records, you’ll want to review efficiently prepared and concise documents that simplify the process as much as possible.

Internal audits can be particularly insightful, as they help to identify financial irregularities or inconsistencies while inspiring positive changes to your reporting and accounting processes over time.

Take Tax Deadlines Seriously And Set Money Aside For Repayment

While this may sound like an obvious assertion, it’s easy to lose sight of tax and self assessment deadlines and become solely preoccupied with the completion and invoicing of work as a small business owner.

However, this represents a serious oversight, as failing to file your annual tax return or pay the amount that you owe by the respective deadlines can see financial sanctions and penalties imposed on your small business.

Even if you want to propose a payment plan to settle your outstanding tax bill in monthly increments, you’ll need to do this before the due date if you’re to avoid penalties. You should also be proactive and make contact with HMRC as soon as possible if you’re having difficulty filing or settling your tax return, as this will enable you to discuss potential solutions ahead of time.

Ultimately, we’d recommend that you set reminders before important tax return dates, creating time for you to file your self-assessment and complete the payment as efficiently as possible.

Similarly, it’s worth saving a predetermined amount of cash each month ahead of receiving your tax bill, as this makes the process of settling the bill much easier and more manageable.

On a final note, you’ll need to remember that your annual tax bill will include so-called “payments on account”, which are advanced contributions towards your next tax bill.

There are two payments on account due, while the total amount paid will be subtracted from your tax liability for the following financial year. This is more than manageable and actually beneficial for businesses over time, but it can be challenging (and occasionally surprising) when making your first self assessment claim.

And Finally…Consider The Merits Of Accounting Software

Last, but not least, you may want to consider the obvious merits of utilising accounting software in the digital age.

This certainly helps to streamline and simplify the process of account management, while creating an immutable and accessible set of financial records that are ideal from the perspective of internal and external auditing.

Even for business owners that may not be particularly tech-savvy, contemporary accounting software is typically easy-to-use and capable of creating an instant solution to financial management challenges.

The use of accounting software also helps to automate parts of the reporting process and create a much more efficient operation, freeing up your time (or that of your payroll team) and enabling you to focus on more strategic aspects of business management.

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