Whether you employ a bookkeeper or not, you should still incorporate many of the activities they perform into your business strategy. By involving these procedures in your business strategy, you will be able to prepare your small business for financial growth and profitability.
Startups face many challenges during the initial days of their business ownership, and it’s quite common for all business owners to face these unexpected challenges.
The main aspect of managing your business is starting with the correct methods or procedures from day one. It's about managing your finances. Small businesses rely on finance for a major part of their operations. As a startup business owner, you don’t need to start with bookkeeping or accounting, but you do need to have skills for the survival of your business.
This article gives you an understanding of financial management that helps you manage your business.
What is the difference between accounting and bookkeeping?
There is a similarity between accounting and bookkeeping because both roles manage financial data and track transactions. But the difference is that bookkeeping focuses on the day-to-day transactions of financial data, while accountants are responsible for helping businesses with the tax code and making long-term financial plans.
Bookkeeping best practices for entrepreneurs
1. Keep your personal and business accounts separate.
Even in the beginning, it is vital to keep your personal and company accounts separate. It's a smart option to have a separate legal entity, such as an LLC or an S corporation, but you also need to maintain the split by keeping your personal finances separate from those of your company's expenses.
When making certain purchases—even unimportant ones like light bulbs for your office—using your personal account, you'll be less likely to be able to deduct them from your taxes as company costs.
The cost incurred on small purchases will add up over a year, and every rupee counts, especially in the early days when margins are low.
2. Handle your accounts payable and accounts receivable.
First, let’s understand what accounts payable and accounts receivable are:
Accounts payable (AP): This is the sum of money that a company owes to its suppliers and creditors. While AP excludes other expenses like salary and mortgage payments, it does cover investor loans.
Accounts receivable (AR): Accounts receivable (AR): Accounts receivable is the term used to describe the money that your company expects to be paid in return for its goods or services. Since the amount of money you receive will ultimately determine what you can pay, this is likely the more important of the two for you to carefully evaluate.
The health of your business depends on maintaining a healthy balance between your accounts payable and accounts receivable. It is not only helpful for your company’s overall financial health, but AP and AR are used as metrics by lenders and investors to determine your business’s worth as an investment and its creditworthiness for loans.
Businesses should have systems running to ensure invoices are paid on time. Generally speaking, you shouldn't have more than 10 to 15% of your invoices outstanding.
You must stay on top of your follow-ups and outreach if you want to keep track of outstanding invoices. Consider including late payment fines or penalties in your business contracts as an additional inducement to receive payments on time.
As an extra incentive to get paid on time, consider adding late payment fees or penalties to your business contracts.
3. Generate profit and loss statements regularly.
Profit and loss (P&L) statements are not required for small businesses management. Even though they aren’t needed, P&L statements are helpful tools for your business and forecasting future earnings and losses.
The true benefits of P&L statements lie in the overall perspective of many statements provided over time. For large businesses to perform on a quarterly basis, you will gain valuable insight into what is working and what isn’t working for your company.
4. Before hiring, figure out the total cost of labor.
If you are looking to expand your team, you should know exactly how much that employee will cost your company before hiring them.
One of the worst things a business owner can do is hire a new worker with high expectations only to find themselves having to cut their pay or work hours because you failed to notice their monthly taxes or cost benefits.
Both bookkeepers and accountants can be employed full-time, part-time, or as independent contractors. Additionally, business owners can outsource bookkeeping and accounting tasks through a variety of internet platforms.
The advice of a bookkeeper is essential, but there are ways you may take on some of the role's duties if you can't afford to hire one or aren't in a position to use bookkeeping or accounting software.