In this article we will give you 10 advices which you could follow when preparing accounts for your business.
We understand that as a small business owner, you are packed with work and busy managing your business. With all that in mind, maintaining and preparing accounting records by yourself can be stressful.
1. Keep records neat and tidy
Keeping manual records can be cheaper than a maintaining a computerized system. If you are keeping manual records, keep them neat and tidy so that you can track them later on.
Keep your documents organized so that you don’t have to waste time searching for them. Collect all your business related receipts and file them according to the date.
It doesn’t matter how much the receipt is for. If it is related to the business keep them with you.
Further make sure to keep the records in detailed as possible so that you can trace them later. This will help you to trace the business expenditure and prepare the financial statements.
2. Maintain two separate bank accounts
Maintaining a single bank account for personal and business dealings can be convenient at the beginning. However when the payments get piled up, it can be difficult and takes more time to differentiate the business transactions from personal transactions.
Keep your personal transactions away from the business dealings. Maintain two separate accounts so that when you get the monthly statement for the business account, you can trace them easily.
3. Keep the books up to date
Don’t wait until the last moment to update your books. The books are important to keep track of the performance of your business.
It would be easy to maintain the books if you use an accounting software. The software will update the books as and when you add the data.
However if you are using manual records, reserve a scheduled time every week to update the books.
When you keep the books up to date you don’t have to be stressed at the year end to complete them. Updating your books every now and then will help you to file for taxes at the year end.
4. Choose an accounting method
It is important to select an accounting method at the startup itself. The available accounting methods are the cash basis and accrual basis. The two systems will depend on how you treat the income in a given year.
Cash basis – Recognizes the income only when cash is received
Accrual basis – Recognizes the income if it is due in the given year even if cash is not received yet.
This will be a consistent accounting approach for tax purposes.
5. Learn the tax rules
Not every tax rule is relevant for your business. However you must learn all the tax rules which is relevant for your business. The tax rules may differ according to the business structure, the industry etc.
If you are not sure about the tax regulations which are relevant for you, then get professional consultations to avoid legal issues.
Always stay updated about tax deadlines and pay taxes on time.
6. Use an accounting and invoicing software
Using an automated software for accounting and invoicing can be expensive, but it can be really convenient and helps to minimize the hassle.
The software will help to keep proper records and update the books accordingly. You don’t have to waste your time and energy entering the records manually and updating the books if you use a software.
The level of accuracy will be high, if you use accounting and invoicing softwares.
7. Keep track of your inventory
Misplacing or theft of inventory can be serious and untraceable issue for a business if it does not maintain proper inventory records. Keep note of the date on which the inventory was purchased, purchased prices, stock number, date and price it was sold for.
This will help you to keep track of the inventory and minimize the risk of theft.
8. Plan for major expenses and taxes
You must always anticipate for unexpected expenditure on maintenance, repairing and upgrading of the assets which are required for the business. Further you must be prepared to pay a percentage of the yearly profits as taxes on the given deadline.
The best advice is to save a portion of your monthly income as a reserve to meet the major expenses in the future.
9. Follow up on accounts receivables
You will not get paid just because you issued an invoice. Maintain records of the credit sales made. Follow up on the debtors with kind reminders and make sure that they pay on time.
These records will help to avoid overpaying the taxes and maintain accurate accounting records as per the accounting method you chose.
10. Prepare financial statements
It is always advisable to prepare all the financial statements including income statement, balance sheet and cash flow statement. These statements will indicate the financial health of the business.
If you are unable to prepare them all, then at least try to prepare the income statement. You must know whether the business is making profits or losses. The Income statement or the profit and loss statement will show you the profitability of the business.
The income statement will also be useful when filing for taxes.
If you still feel that you need help to maintain accounting records for your business, then our team is ready to help.
Don’t worry about the scale of your business. We value every business and no business is too small for us.
We are professionals in accounting and business consultations in Narre Warren. If you are looking for a professional expert to handle your books, then please don’t hesitate to contact us.
Sources: Australian Taxation Office