By Dina Davis
Small business owners are often inundated by all the little pieces needed to keep their business running smoothly. It’s a balancing act to keep everything going while looking ahead to the future. As an accountant working with small businesses, I have seen business owners overlook some important pieces to the puzzle and want to help others avoid the same mistakes. Here is my Top 10 List of Accounting Must-Do’s that are key to helping you solve your small business’s financial puzzle.
1. Reconcile your bank account monthly. This is the only way to keep track of what is going on with your account. Unauthorized charges or mistakes need to be dealt with and you won’t know there is a problem until you reconcile with your statement. Recently I dealt with a monthly fee that was appearing on a statement with a vendor we currently use. Upon checking into it, we realized it was a duplicate account set up that was posting additional charges to our account.
2. Keep an eye on accounts receivable collections. Following up on old invoices is essential to keep your cash flow going. Sometimes bills don’t always get to where they need to be to get paid. Don’t assume the payment is forthcoming. It only takes a minute to check in with them. It doesn’t have to be awkward; a friendly “just checking on the status of this invoice” will do.
3. Reconcile your credit card monthly. Same concept as the bank account. Make sure you understand and have authorized all the charges that appear on your account. Be sure to break out credit card bills by line item. Don’t lump the total to be paid in one account. Separate out each line item or use a total for each category so you can make sure they are posted to the proper account. This will help you down the road when you are getting things ready for tax time.
4. Review all bills received – or have someone else review them. Mistakes happen, make sure you understand the amount to be paid. If it is higher, what has changed? Look for hidden fees added onto a bill or included in the small print. Recently I dealt with a credit card merchant statement that included an additional fee of $30 per month. Upon checking into it, I realized I was being charged for not submitting some annual paperwork required. Once submitted, the fees were removed. Even small hidden fees do add up after a few months.
5. Track your expenses. Even the most basic small business should use some kind of spreadsheet to track income and expenses. You can use something as simple as an excel worksheet or one of the many software programs made for smaller businesses, i.e. QuickBooks. A software program will make it easier for you to keep track of things and running reports will be a breeze.
6. Be consistent with the categories you use for expenses. For a monthly bill, use the same category each month. Consult your accountant or use a category called Ask Your Accountant for bills
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that you are not sure how to categorize. It is easy to go in later and change them to the correct category if they are all together.
7. Setup an organization system that works for you. Keep receipts in folders by month or by type of expense. It doesn’t have to be complicated and time consuming. You can use plain manila folders or envelopes. Browse your local office supply store for ideas on how to organize your desk area. Sometimes just a few simple items will make you more productive. Some people work well with disorganization but most people need a system that works for them. Again, you will be glad you did at tax time.
8. Plan ahead for big expenses. Put a little aside each month when you can. It is easier to plan ahead than to suddenly scramble to come up with amount needed, especially if you are experiencing a cash flow crunch.
9. Take advantage of favorable payment terms from your vendors. Use the terms to plan out the payments you need to make each month. Make it fit with what works the best for your business while taking into account the normal cash flow requirements.
10. Do a quarterly checkup. Review your profit & loss statement. How are your sales going? Is there anything you can do to reduce your expenses? How do your sales and expenses compare to last year? How does your profit look? Do you need to put aside some more money for quarterly tax payments? One big mistake that I see small businesses make is not doing regular checkups throughout the year. They don’t put anything aside because they are “sure” they are not making any money. They are very unpleasantly surprised and stunned when they owe a lot of money. That is not a position that anyone likes to be in.
No one said that running your own business would be easy, but there are things that you can do now that will help prevent any major mishaps in the future. Making a commitment to be diligent with your finances doesn’t have to be hard. Following these steps will help put you on the right track to completing your puzzle.