Here are some tips to help small business owners with their accounting.
Small business accounting is not rocket science. However it needs to be managed in a timely and accurate manner. The details are important. And it can waste a business owner's time and money when not managed properly. Having said that, small business accounting can be tricky for owners and managers without any much financial background. So here are some tips that might help.
1. Keep business and personal accounts separate.
It gets messy when small business owners mix up their business and personal funds. When it is blended - such as when an owner invests their own funds, then this needs to be managed properly. Revenue and expenses must always be kept seperate to salary and other income. This demands that you start with the right structure. and open a business bank account. Pay yourself a salary from this account every month. Use a seperate business credit card and open a business savings account for a rainy day. Track any usage of personal items for business reasons, and any expenses you may wish to claim on the business.
2. Always get a receipt.
Expenses can often be claimed as tax deductions - whether fully or partially. However you do need to hold the receipt for tracking and verification. So many people either forget to keep the receipts, or lose them, or have them buried in a mountain if paperwork from where they are often missed. We suggest you file them away in a folder or file every week or month at least to be able to retrieve and classify them easily for BAS and year end.
3. Watch your accounts receivables.
If there isn't money coming in the door, then the business will not be able to continue to operate. SO, we suggest that at least once per month you as the business owner take a look at the percentage and total amount of outstanding revenue. You want to be sure that no more than 10-15% of your accounts receivable is past due. Contact the clients that woe you money every week to try and avoid sending formal collection notices. Deal with any issues immediately. You can also potentially look at a late payment fee based on a monthly finance charge of maybe 0.5%. Tell clients in advance, and stay on top of this part of the business.