Accounting is one of those things that most people find confusing and frustrating.
However, as a small business owner, it’s also extremely important. And until you give it the time and attention it deserves, you’re going to struggle with it.
Thankfully, there is an easier way.
5 Tips for Simpler Accounting
Accounting can be as simple or as complex as you choose. And while there might be some advantages to using a sophisticated accounting method in larger organizations where small nuances can give way to significant results, there’s no need for smaller companies to use complex systems. Simple is always better.
What does it mean to develop a simpler accounting system? It’s pretty easy, actually. Here are a few helpful tips and strategies:
Keep Expenses Separate
This first suggestion applies to freelancers, sole proprietors, and small business owners who run basic LLCs. If you fall into any of these categories, you must keep business expenses separate from your personal expenses.
Nothing will mess up your accounting quite like intermingling money between your personal bank account and your business accounts. Not only does it create headaches, but in a situation where you have an LLC, it could actually “pierce the corporate veil” and take away any legal protection/separation you might have had.
Small expenses or large expenses – it doesn’t matter. Keep them separate at all costs. This will prevent unnecessary confusion in your accounting processes.
Have a Plan for Tracking Expenses
Speaking of expenses, you need a plan. How you track expenses and receipts will dictate how streamlined and organized the rest of your accounting processes are.
One of the biggest keys is to keep everything in one place. Paper receipts are a pain. Not only are they easy to lose, but the ink fades over time. We recommend having a process where you immediately upload an image of physical receipts and load them into your cloud accounting software. This prevents confusion and keeps accounting streamlined.
Upgrade Your Back Office Systems
Having organized back office processes will help you stay on top of your accounting. Ideally, this means finding and integrating an ERP system to unify data across all major departments within your organization. (This includes sales, accounting, services, manufacturing, etc.)
If you’re unfamiliar with what ERP applications do, they’re basically tools that are designed to facilitate a smooth flow of information throughout your business. It simplifies the task of collecting and managing customer contracts, budgets, expenses, payroll, accounts receivable, accounts payable, etc. By having all of this information in one place, you don’t have to go on a wild goose chase to track down data. This makes accounting so much easier (and more accurate).
Choose the Right Invoicing System
An accurate invoicing system makes all the difference in the world. If you go the ERP route, then you should have a good invoicing feature built into the platform.
However, if you’re not using an ERP, you’ll have to choose a good standalone option. There are plenty of good options on the market. As you search for the right one, consider features like cost, integration, and scalability. (Make sure it has the ability to grow with you. Switching invoicing systems is a pain in the neck. There’s no sense in having to move everything over as your invoicing needs grow.)
Maintain Current P&L Statements
As you know, the two most important metrics in any business are profits and losses. But don’t wait until the end of the quarter or year to study your P&L statement.
“Small businesses experience surges and dips in sales all the time, and while some things like seasonal sales can be prepared for in advance, there are many factors that are out of the business owner’s control. Keeping an up to date P&L statement allows you to quickly get a snapshot of the overall health of your business at any time,” business owner Roxana Zaman mentions.
When tracking your P&L, be as thorough as possible. Always include revenue, cost of goods, operating income, operating expenses, gross margins, net profits, etc.
Don’t Let Complex Accounting Hold You Back
Complex accounting might sound good in theory, but it’s usually going to create more headaches than anything else. By simplifying your approach and stripping things back to the basics, you’ll get better results almost immediately.
