Separate business and personal expenses. One of the first steps a small business should take is opening a business bank accoun.
Businesses should open a checking account, savings account, credit card account and merchant services account, which allows the company to accept credit and debit card transactions from customers.
Get bookkeeping software (and a bookkeeper). Bookkeeping is the organized process of tracking all income and expenses. It’s a critical component of financial management that ensures business owners have the information they need to make sound business decisions. For many small business owners, accounting is not among their skill set. Hiring a person dedicated to the task or, for smaller businesses, outsourcing the function is often a wise investment.
Develop a budget. One of the first steps in creating a business plan is coming up with revenue projections and a list of anticipated expenditures, and then comparing that budget to actual expenses and revenue.
Keep accurate business records. Recordkeeping is one of the most important responsibilities for a small business owner. Accounting software can automate much of the recordkeeping process and digitally store financial records. That makes it easy to document the amount, time, place and business purpose of a transaction when you claim expenses as tax deductions.ds transferred, cash register tape receipts, account statements, credit card receipts and statements and invoices.
Cash basis accounting can be more straightforward and easier to manage for small businesses because revenue is recorded when payment is received. Similarly, expenses are deducted when the money actually comes out of the company’s account. Accrual accounting records the sales when a product ships or service is delivered. In a retail setting, a sale is recognized at the time of purchase, and in other industries revenue may not be recorded for several weeks or even months after the sale. It requires double-entry bookkeeping. Since accrual accounting takes a long-term view of the business, it generally provides a better picture of a company’s financial health.
Keep the books up to date. Without keeping the books current, owners and employees don’t have a clear picture of the company’s financial state. Automating receipt and invoice capture is one way to ensure the books are always up to date. Another important step is to link bank accounts with your accounting software.