In the early stages of your business growth, you are focused on perfecting your product or service, finding clients and making sales. Indeed, those can be the exciting part of being a business owner.
But what about accounting or managing your financials? For most businesses working through the early stages of growth, accounting can be an afterthought. In this busy period, accounting is something you tends to fall to the bottom of the priority list.
The truth is accounting can give you the information you need to make better decisions and identify opportunities that will help your company grow. It’s also an essential part of having a plan. It’s about looking to the future and getting ready for what’s to come.
Here are some essential accounting tips that all growing businesses should incorporate in their growth plans.
1. Plan for Major Expenses
Regardless of your industry, certain major expenses such as technology, equipment or extra office space are largely unavoidable. It’s important to plan for it. When you have a plan, you’re less likely to miss business opportunities or have to scramble for a loan when the expenses arise.
The key is to budget for this eventuality. Put events like a major computer upgrade on the calendar a year in advance or, ideally, three to five years ahead.
Keep your business cycle in mind by scheduling the investments during the flush periods. Costly projects like upgrading computers or replacing factory components usually happen during the slower months, but if you had to pay for them during that period, you may find yourself short for that quarter.
2. Track Expenses
Tax laws afford significant benefits for business expenses. Part of your success depends on properly taking advantage of these benefits.
How to maximize the benefits? Track those expenses. Otherwise you might some miss tax write-offs and may lose out on others.
A good idea is to keep a credit card that you use solely for business purchases. Most card statements categorize expenses, so you can see which outlays relate to which business activities. This habit can go a long way towards substantiating those items for your tax records in the event of an audit.
3. Record Deposits Correctly
Not every deposit is income, so you will not need to pay tax on those incoming funds. Business owners typically make a variety of deposits into their bank account through the year, including loans, revenue from sales and cash infusions from their personal savings. It’s important that you have a system in place to record the deposits properly.
4. Use Professional Software
Most small businesses start their accounting by using an Excel spreadsheet. But as the business grows, the company should invest in a software system for its financial activities. Professional software gives your greater ability to properly organize and track your financial activities, including creating monthly and quarterly reports and tracking inventory.
5. Set Aside Money for Paying Taxes
Putting money aside and earmarking it for taxes is a hard thing to do, particularly as you have so many other possible uses for those funds. Nevertheless, it’s one of the most critical practices to follow; CRA can levy penalties for not submitting tax payments on time, including payroll, income and sales taxes.
Create a calendar and put a portion of money aside throughout the year for taxes. Note tax deadlines on your calendar to make sure you actually make payments when they’re due.
6. Keep a Close Eye on Your Invoices
Late and unpaid bills hurt your cash flow. It’s easy to let it slide a little bit, and then have the day-to-day activities overtake your attention. That’s how you lose track.
This is another time when it’s important to plan ahead. Your billing process should be more than sending out invoices. Have a protocol in place for what happens when payments are 30, 60 or 90 days late. The protocol should focus on issuing a second invoice, a phone call, and perhaps levying penalties such as extra fees at certain deadlines.
Remember: those unpaid invoices are, in effect, interest–free loans you have extended to your clients. Help your cash flow by making a robust billing process.
7. One of the Biggest Accounting Tips — Dedicate a Person for Accounting
It’s the final point, but it’s one of the biggest ways for staying on top of your accounting – assign someone to do it. You need a dedicated in-house person to take care of those duties. Your dedicated person can keep track of your billing and invoices, and keep track of the details such as recording expenses and properly recoding revenues. This ensures that none of the important practices will get lost in the shuffle and you will maximize your company’s potential for growth.
Did your accounting duties sneak up on your growing business?
How did you improve your business practices?