There are a number of different steps you can take to work towards maximizing your business’s efficiency and success. You can go out and do more marketing and advertising, you can contact more suppliers and wholesalers to work towards getting better deals on products, and you can work towards streamlining your business’s accounting and bookkeeping processes.
If you’re just starting out with your business, then it’s an excellent time to ensure you have a solid accounting and bookkeeping system in place.
Whether you hire help to deal with it or record everything yourself, having a crystal clear accounting process is one of the best ways to ensure your business is as efficient as possible.
Understanding What Accounting Entails
Before you dive into buying Quicken or some other financial software, you need to have an understanding of what bookkeeping and accounting is. If you begin recording your business’s financial information without any knowledge of what or why you’re doing it, it’s likely that you’ll make very dangerous, uninformed decisions about your business’s finances.
So, if you haven’t read up on accounting and bookkeeping elsewhere, now’s the time you’ll learn.
Bookkeeping is the simple act of physically, or digitally, recording all of your business’s financial transactions in ledgers and accounts. Once all the transaction data is gathered together, a bookkeeper can then go through all the records and pull all the important financial data out in order to hand over to an accountant. The accountant can then take all that data and interpret and analyze it in order to see the big picture of a business’s financial situation. This is good for the business owner as once the big picture is known, informed decisions regarding the direction the business should take can be formed.
Managing Your Books
When it comes to actually managing your books and business accounting needs, there are actually two different methods you can use.
These two methods, according to American Express, are cash and accrual accounting. When you use cash accounting, a transaction is only recorded once the cash payment, or other payment method if one is used, is actually exchanged. So if you make a sale, but the customer isn’t paying you until next week, the transaction won’t be recorded until next week when you get the money. On the other hand is accrual accounting. This method of accounting requires you to use an Accounts Receivable system (more on that momentarily) to track all transactions your business has made but you haven’t received payment for yet. Accrual accounting is basically recording every transaction as soon as it happens, regardless of whether you’re paid for it right away or not.
Accounts Receivable and other Recording Systems
Regardless of which accounting system you choose to use for your business, you’ll need to get in contact with your bank or accountant to discuss other accounts and services you’ll need to set up for your business.
Out of all the small business accounting needs there are, making sure your bookkeeping and accounting systems are organized is top priority, popular resources like this one from Shopify can help you understand how you can effectively organize your accounting system. Score provides a great list of different account types you may need, including; Cash, Accounts Receivable, Inventory, Accounts Payable, Loans Payable, Sales, Purchases, Payroll Expenses, Owner’s Equity, and Retained Earnings. Each account is for a specific record keeping need, whether it’s bills, payroll, stock levels, or something else. Keeping your records organized and separate using different accounts like those above is an excellent way to ensure clarity in your business’s financial transactions, which leads to an increase in efficiency and transparency.
While working on everything on your own is certainly a route you can aim for, dealing with all your bookkeeping and accounting needs on top of everything else with your business can get overwhelming fast. As such, hiring professional help, either temporarily for dealing with taxes, or on a permanent basis for all your accounting needs, is a totally viable option. However, you need to be aware of the fact that hiring one person for both bookkeeping and accounting might not work. You’ll likely need a separate person for all your bookkeeping and another for all your accounting. If you’re confused as to why, Entrepreneur explains it like you need to get a carpenter and an architect when building something. The bookkeeper is there to record everything and deal with all the “grunt” work of tracking your business’s finances while the accountant takes all that information and uses it to see what the financial “big picture” of your business is.
Regardless of whether you decide to hire help or work on everything alone, you need to spend some serious time thinking about how to streamline your business’s financial tracking system in order to maximize your business’s efficiency.