One of the most important aspects of running or starting a business is the accounting system. How you keep your books, track transactions, and document your finances can make all the difference in the success of your business.
Establishing an efficient, effective accounting system starts by following best practices.
Why Bookkeeping & Accounting Are Important for Businesses
Bookkeeping, the practice of recording a business’s daily financial transactions; and accounting, the process of tracking, recording, calculating, and analyzing a business’s financial performance; are both essential functions for businesses.
With an accurate, comprehensive bookkeeping and accounting system in place, you will have up-to-date information on the performance of your business, including cash flow, financial health, and performance trends. The resulting data can be used to file taxes, apply for small business loans, attract new investors, and more.
7 Best Practices to Follow
As you manage your business finances, follow these bookkeeping and accounting best practices to ensure you stay on top of the financial health of your company. These tips will not only improve the functionality of your existing accounting processes but also support the future success and growth of your business.
1. Separate Personal & Business Finances & Monitor Your Cash Flow
If you are starting or running a business, one of the first steps you should take is to separate your personal finances from your business finances. Establish separate bank accounts and credit scores for your business and personal use to prevent personal matters from affecting your business finances (and vice versa).
2. Use Accounting Software
Manual bookkeeping and accounting are prone to human error. Accounting software can help your business reduce the risk of data inaccuracies and tax filing mistakes. While bookkeeping technology and automated accounting software may cost money or take time for you and your employees to learn the technology, it has several benefits in the long run. Benefits include saving time as well as money (if, for example, you face penalties because of incorrect tax returns due to a manual system).
3. Keep Consistent & Accurate Financial Records
Find a bookkeeping and accounting system that works for you—and stick with it.
While it may be tempting to switch processes later, try not to unless necessary. Regularly changing record-keeping systems can cause chaos. However, keeping consistent, accurate financial documentation and following the same accounting practices will ensure your records are accurate and reduce errors and complications.
4. Follow Generally Accepted Accounting Principles (GAAP)
Generally accepted accounting principles (GAAP), established by the United States Securities and Exchange Commission (SEC), are a standardized set of bookkeeping and accounting processes across publicly traded companies. While private companies are not required to use GAAP, many businesses choose to follow GAAP regardless to reduce confusion. As you create and document accounting processes for your business, be sure you keep GAAP in mind.
5. Track Performance & Manage Cash Flow
Pay extra attention to your business’s income statements, balance sheets, and cash flow statements over time. These reports give you a deeper understanding of the financial health of your business.
It’s especially important to analyze cash flow for your company. By analyzing the cash coming into and out of your business, you can pick up on trends and patterns that can guide decision-making.
6. Keep Receipts & Invoices
As part of your bookkeeping and accounting procedures, it is recommended you keep receipts and invoices. Some businesses organize paper receipts and invoices in file folders organized by vendor or account, while other companies scan physical documents and attach an electronic copy to each transaction. Either of these methods creates a trail of evidence in the event you are audited by the Internal Revenue Service (IRS). You can then use those receipts and invoices to validate any of the tax deductions in question.
7. Consider Hiring a Professional Accountant
Bookkeeping and accounting are a lot of work and require time, resources, and expertise that you may not have to spare. However, failing to diligently track and analyze financial records can lead to disastrous consequences. That’s why many businesses hire professional accountants to shoulder the burden.
A certified professional accountant (CPA) will take care of your financial documentation and records, freeing up your time and resources to focus on more important tasks.If you are overwhelmed with or confused by your business accounting, get help from an experienced, trustworthy CPA.
Get Help from the Expert Business Accountants at Fisher, P.A.
Our skilled team is ready to get to work so you can get back to doing what you do best: running your business. Call us at 704.332.7800 or fill out our contact form today to schedule a consultation.