Bookkeeping and accounting are essential for any business. Not only do they offer insight into business profits, but they detail business losses, enable organizations to make informed decisions regarding how and where money is spent, and ensure that accurate and up-to-date annual federal tax returns are submitted each year.
With cash flow problems cited as one of the leading causes of small businesses failing, it’s vital that bookkeeping and accounting are prioritized. If you own a small business and are looking for insight into how you can enhance your financial operations, our bookkeeping and accounting best practices guide has been written with you in mind.
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What Are Bookkeeping and Accounting?
Before delving into our bookkeeping and accounting best practices guide, it’s important to be clear on what bookkeeping and accounting are.
Simply put, bookkeeping and accounting allow businesses to monitor their cash flow. Whether taking advantage of software or employing a professional specializing in finance, during bookkeeping and accounting small businesses compile information on daily, weekly, or monthly financial transactions. These transactions could include money spent on marketing, payments made to the business from clients, employee wages, and travel costs.
With accurate bookkeeping and accounting best practices, many small businesses find it easier to keep on top of their finances, which can have a positive impact on the wider organization and scalability.
Bookkeeping and Accounting Best Practices
From creating forecasts to using a business credit card, we share our bookkeeping and accounting best practices guide below.
Monitor Cash Flow
Monitoring cash flow is one of the most crucial bookkeeping and accounting best practices, yet many business owners continue to experience cash flow problems.
In some instances, cash flow issues can be influenced by external economic factors such as inflation, exchange rates, increasing tax rates, and recessions. But when businesses monitor cash flow and create forecasts, they are better equipped to navigate any potential problems successfully.
Small businesses that monitor cash flow generally have greater insight into their monthly and annual profits, expenses, and fluctuations in fees. Not only does this mean they can efficiently make changes necessary to ensure their business stays afloat, but it enables monthly payments to be made and received on time.
Create Cash Flow Forecasts
As mentioned above, creating cash flow forecasts can support you in managing your business expenditure and income. But how much time do you currently spend doing this? If not regularly, this practice is one to prioritize.
Essentially a guide that enables you to account for future spending, cash flow forecasts are ideal for both short and long-term plans. Working on a month-by-month basis, you can input any recurring payments and anticipated income to calculate the total profit and outgoings. With this in mind, you’ll be able to observe how much profit you have left over for non-recurring business expenses and taxes.
Take Advantage of Accounting Software
If you’re not already taking advantage of bookkeeping and accounting software, then this is highly recommended in our bookkeeping and accounting best practices guide. Not only does accounting software ease the process of inputting financial data, but it also provides accurate insight into spending behaviors, supports the submission of tax returns, and reduces administrative tasks thanks to automation capabilities.
More than 64.4% of small business owners in the United States currently use software to perform accounting tasks. David Luck, Co-founder and CEO of Capital on Tap, says: “Capital on Tap prioritizes simplifying expense tracking for small businesses through the Capital on Tap Business Credit Card, issued by WebBank. Capital on Tap takes pride in partnering with renowned accounting software providers such as Xero, QuickBooks, and more. This allows businesses to seamlessly sync their business credit cards with their preferred software, granting them enhanced control over their cash flow.
“In addition to this feature, supplementary cards further amplify the benefits of expense management. Small businesses can easily issue supplementary cards to their employees, extending the convenience and tracking capabilities to their entire team. With real-time tracking capabilities and streamlined integration, small businesses can effectively manage their finances and make informed decisions with ease.”
Use a Business Credit Card
Research shows that out of the 33 million small businesses in the United States, only 47% use a business credit card to complete financial transactions, while 48% use personal credit cards. Although using a personal credit card for business purposes may not seem problematic, doing so can make it more challenging for business owners to accurately monitor business spending.
When it comes to bookkeeping and accounting best practices, using a business credit card comes with many benefits, including:
- Employee cards
- Instant cash flow projections
- Pre-approved spending limits.
Damian Brychcy, COO and US MD of Capital On Tap, says: “Business credit cards, such as the Capital on Tap Business Credit Card, issued by WebBank, are designed to support small organizations that make at least $2,500 per month. They can help small businesses separate personal and business transactions. With free cards available for employees, businesses can pre-approve employee limits and keep on top of spending at the click of a button. If that wasn’t enough, our business credit card comes with many other benefits, such as an uncapped 1.5% cashback.”
Outsource Bookkeeping and Accounting Tasks
Although the number of small business owners utilizing accounting and bookkeeping software is on the rise, outsourcing bookkeeping and accounting tasks to a professional can be beneficial for several reasons.
Firstly, using an external accountant reduces the number of administrative tasks you or your team need to complete. In addition, employing an expert guarantees that your books are an accurate reflection of your business expenses and profits at all times.
When it comes to outsourcing, an accountant can also submit your annual tax returns and share insight into business spending that can inform cash flow projections for the year ahead.
To Conclude
From reviewing cash flow and planning future projections to using a business credit card and outsourcing accounting tasks, our bookkeeping and accounting best practices guide shares everything that you should consider regardless of whether your business has been operating for one, five, or 10 years.
