Accounting is not a cakewalk but not keeping your book of accounts up to date will leave your business in a regrettable state.
What are three major drawbacks of not keeping your books balanced?
- You won’t be able to get an accurate estimate of the profit and loss of your business
- You won’t be able to precisely forecast any future shortcomings of your business
- You won’t be able to plan for your business growth correctly.
Well, this write-up is all about creating a discipline in yourself for your business. Let’s jump in…
1) Understand some accounting terms
Familiarize yourself with accounting terms. The following are some of the terms that can help you to begin:
- Balance Sheet: It’s basically a report which showcases your financial situation i.e. what your business owes and owns. It is derived by keeping note of all the assets, liabilities and the capital of the business.
- Chart of Accounts: The bifurcation of your financial transactions i.e. categorizing your transactions. E.g. Cost of Goods Sold, Revenue.
- Expense: This can be a daily / monthly/ yearly cost incurred by your business to generate revenue.
- Trial Balance: A business document where all ledgers are compiled into debit and credit columns.
- Profit and Loss: A financial report which shows the revenue and expenses over a period of time.
When you put your hands into accounting you will come across many others apart from these.
2) Start with keeping your Business and Personal bank account separate
We always keep our personal and professional life separate, don’t we? Same is with your bank accounts. Keeping your personal and business bank account separate will in turn help you to track your business transactions accurately and will save a lot of man-hours when recording those transactions for your journal entries.
3) Keep record of the money that comes into your business
Following are some of the records that will help you keep track of the same
- Accounts Receivable: These are the list of receivables that are yet to be received i.e. the due amount from your customers. When you keep track of these details then you will be able to send timely invoices for the same.
- Sales: These are the list of accounts that track all of your incoming revenue from sales.
- Retained Earnings: All your profits earned and reinvested in the business are recorded in this account.
Apart from these you must keep record of all your cash transactions. You can give any vendor a receipt for the purchases they have made from your business. Neglected cash flow can lead to inaccurate forecasting.
4) Keep record of the money that goes out of your business
Following are some of the records that will help you keep track of of the same:
- Accounts Payable: These are the list of records that you owe someone. If you keep such records then you won’t end up paying twice.
- Purchase: This is the account where you track any materials or goods that you have bought for your business.
- Payroll Expenses: Track salaries and wages paid to your employees.
- Owner’s Equity: Owner’s equity is essentially the owner’s rights to the assets of the business
Speaking about the cash transactions, you can ask the vendor for receipts when you make a purchase for your business.
5) Segregate the cash flow using technology
Get Digital! Choose any of get the accounting software available in the market to manage your cash flows.
Read our article on ‘Digitalization of accounting’ to understand how digitalization helps. Any of the accounting software will help you to divide your transactions into categories. This will make your accounting easier as you will be able to recognize the transaction types.
6) Hire a professional to handle your accounts for you
When you are running your business, you most likely won’t have time to keep up with your accounts when you have to do it all by yourself. Hiring a professional will also cost you money but it’s an investment as well. Think of the situation when you want to create strategies for your business growth but you won’t be able to do it as your book of accounts are pending. You can go with the following two types of professional
- Freelancer : This professional can be an individual or a CPA who can help you handle all your financial records for a small fee. Majorly they are helpful if you have a small business.
- Accounting firm : A firm of experienced and qualified accountants who provide accounting and auditing services for a fee. They can be a great help to you if you have a large business.
If you go with hiring a professional, do make sure that you create a discipline in yourself about sharing all the invoices and receipts with your accountant or the accounting firm. Take regular updates from your hired professional and check your accounts regularly. Don’t hesitate to change your accountant or accounting firm if their services don’t suit you but if their services do suit you then don’t let any new professional change your mind.
Quick tip: If you can’t decide which type of professional to go with and you have two organizations, you can let two professionals handle it separately, that way you know which kind of professional interests you.
We, at Nimblefincorp, have been helping many businesses do their accounting. We believe in providing efficient ways to manage the cash flows and book of accounts to all our clients. Leave us a quote or you can drop a message at [email protected], and our team will get back to you.