A strong financial foundation is critical for growing your business. Avoid leaving money on the table by getting your accounts and processes up to scratch.
There are countless businesses who make these four common accounting mistakes:
Relying on spreadsheets
Incorrectly setting up their chart of accounts
Accounting on a cash basis
Not using an industry expert accountant
These mistakes prevent them from seeing the full picture of their financial health, compounding errors as time goes on. To stay ahead of the game, avoid these mistakes, and set up your business for growth by using these 4 accounting tips for start-ups and small businesses.
1. Utilise accounting software
While it may be tempting to use spreadsheets when you first start out, this system is often a time consuming vortex of manual data entry, making it easy to make mistakes.
Instead, streamline your processes by utilising the range of accounting softwares available to meet the needs and budget requirements of your business. By automatically pulling the required data from your accounts, accounting software is more time efficient, reduces mistakes, and produces professional reports effortlessly.
2. Set up your chart of accounts correctly
Are you using account numbers to organise your chart of accounts? Do you use departments and classes to categorise your revenue? If you answered “no” to any of these questions, your chart of accounts needs improvement.
If your chart of accounts isn’t structured correctly it’s likely messy, difficult to use, and delays reporting. This incorrect set up means you may find yourself presenting financials that are non-compliant or overdue to members or investors, giving the impression you don’t have your business in order.
3. Track revenue and expenses using accrual basis
Cash basis and accrual basis are two methods of accounting. Cash basis accounting is where each item is entered as payments are received or made, whereas accrual basis is where each item is entered as it is earned or incurred regardless of when actual payments are received or made.
While many start-ups and small businesses begin by using the cash basis method, accrual accounting will make it easier for you to make strategic business decisions by providing a more accurate view of your business’s financial health.
Your board or investors will also expect any financial reports presented to them to be under the accrual method.
4. Work with an accounting expert in your industry
Not every qualified accountant will be able to handle your business’s finances. If the accountant you choose to use isn’t familiar with your industry, they may not know the specific accounting requirements you should be following.
When selecting your business accountant, conduct research to ensure they are proven industry professionals. This can include an existing client base of businesses in your industry, and professional, up to date skills with industry grade accounting software.
With these four tips for small businesses and start-ups you’ll avoid common mistakes, streamline your financial processes, and ensure your business has a strong financial foundation.