Are you thinking of investing in your new start-up? Wondering how much you should spend on the accounts personnel? Well, probably you might even be here to understand the meaning of some heavy phrase you once read somewhere which says that the language of business is financial accounting!
So, relax now, this post is going to help you out with the top tips for your business accounting and also provide you a basic guide about financial accounting.
The importance of accounting
Financial accounting is one of the most crucial methods for systematic tracking of any company’s financial transactions. It provides information about almost all monetary decisions which have to be taken for a business. Financial accounting summarizes a lot of useful information into small concrete gist.
Small business owners often find it important to keep score through financial accounting. It is necessary for accurately tracking financial information of the business. Moreover, it is also crucial for determining the effectiveness of their financial operations. Well, that’s not all financial accounting also comes as a big support for checking on historical records that are important for making new decisions.
Diving into the benefits of financial accounting
Financial accounting is extremely important for people who are planning to start-up a new business. Moreover, there is no shortage of details to consider when you start a new business. You have to track revenue, expenses, and profits.
Moreover, you might be able to get away for a little bit by keeping your own books in the beginning. But, as your company grows further then you will observe that as soon as the tax time approaches, you will start feeling those jitters. There are so many things to worry about starting from fees for incorrect tax filing or even making a messy bookkeeping. Any such mistake could be detrimental for your business!
- Tracking the cash management
Companies are often involved in trade credit which is generated due to the purchase of goods, or raw materials or any other services. Now, you should understand that the accounts payable will consist of all the money which is mostly owed to other businesses for those purchases. Moreover, the accounts which are receivable will include all the money which is not yet collected from the previous consumer purchases.
Another critical thing is that the financial accounts will determine that how much money is currently residing in their bank account. Not only that, it also has to be kept in record that how much money is due to the vendors or suppliers. After all of this is taken care of then the company has to reflect that how much money they need to collect from their users or consumers.
So, financial accounting helps in managing the current cash transactions and helps to keep a tab on it.
- Making legitimate transactions
Having a financial accounting system will help the novice business owners to make legitimate decisions for financial transactions. For example, if it is crucial for investing more in a particular share or if a certain share is going in loss and it needs to be eliminated.
All this information is available only through proper financial accounting. So, it helps in making appropriate and legitimate decisions. Apart from the decision making part it also sets aside a clear picture of the profits and losses which can help the company to recover from unprofitable transactions if they have a record of it through financial accounting.
- Compilation of financial statement reviews
Each company has a lot of accounts and it is difficult to get hold of a financial statement for all those account. But, with the use of financial accounting the employees can accumulate all the date into a single financial statement that will be quite time saving for the employer to review.
There are many computerised financial accounting systems which might increase the financial statement analysis of the individual accounts.
So, through this the companies can drill down into financial accounts of individuals which make it easy to predict the profits and losses. The three most popular fundamentals of financial business accounting are the balance sheets, income statement, and the statement of cash flows. Other specific financial reports can also be developed by the financial accounting statements of the company.
- Preparation of budget
Most of the reputed companies utilise the financial accounting statements for preparing budgets of their organisation. The usual process of creating a budget includes reviewing and analysing historical information from various financial accounts.
After that, an attempt is made to predict whether these numbers will decrease over time, stay the same or increase in the recent future transactions. Budgets work like a road map for financial transactions that other companies can easily use for making other concrete business decisions.
- Tackling taxes
Financial accounting also helps a lot for handling the taxation matter. A lot of times it is very difficult to manage tax files and process the returns. But, once the figures are all aggregated together in a certain financial accounting statement then it becomes quite easy for the company to take care of the taxes that are to be paid.
It also helps to maintain a proper historical record of the financial transactions which can be later used as evidence for future tax purposes. Lastly, the handling of taxes will also help in maintaining the liquidity of the business.
The financial accounting tasks
A number of tasks might be crucial for financial accounting. The following tasks are always included:
- Management Accounting
- Accounts Payable
- Accounts Receivable
- Payroll processing
- Tax preparation
Top tips for novice business owners!
Well, I have blabbered a lot about financial accounting and I am sure you people are eagerly waiting for the next part of the post where I am going to reveal some mind boggling tips for the novice businessmen who aspire to have their own start-ups soon.
So, without much a-do let us just start with the tips, alright?
- Record your income accurately through financial accounting.
There are a lot of things that need to be kept in track when it comes to managing the income of an organisation which include loans, various types of cash infusions, and revenue from sales. But, no matter what you have to keep a tab of the regular cash inflow, right? Otherwise, there are chances that you might skip paying some of the taxes or might lead to violation of policies and pay penalties. Moreover, when it comes to expenditure it will be easy for you to keep a track if you have proper financial accounting.
- Learn to differentiate between your personal and business expenditures
First and foremost, do not forget to have a separate bank account for your company/business’ savings and expenses. That is going to save you a lot of time when you have to calculate the profit and tally it up with the deductible expenses of your business.
In case, you are using your personal assets as investment for your business then you must separately mention it as a contribution. Moreover, the bonus part about maintaining a separate account is that a separate business credit card will help you with a limited legal exposure. It will also be beneficial to limit your business debts and have a limited liability corporation.
- Keep a track of your labor costs
Do you know that paying your employees and managing the salaries account to about 75% of the total business budget of your company? Keep a track of the overtime, the leaves, the payment cost, and make sure you do not underpay anyone. Moreover, you have to take care of the payroll taxes that your company charges because you don’t want to pay penalties, right? Also, remember that payroll taxes are very different from income taxes.
- Do not forget to maintain the inventory records
It is necessary to maintain inventory records when you are managing the financial accounting of your business. So do not forget to take special care of your merchandise. In order to keep a proper tab on it you can take a note of the dates when they are purchased, along with the stock of the products and keep it more organized for your own safety. There is nothing much to worry about because there are hundreds of software to help you with your financial accounting and keep a correct track of all your valuables.
- Hire a professional to take care of your financial transactions or put your faith in the accounting software.
Later in this post I will provide you with a list of such software that can simplify your tedious task of professional bookkeeping or accountancy. Before moving further let me explain the difference between an accountant and a bookkeeper. The work of a bookkeeper and accountant almost but the former is mainly concerned with recording and classifying your cash inflow, income and accurate expenditures. Whereas an accountant will do all the previous tasks but also file taxes along with that and assist you with proper strategic planning.
Well, if you can utilise the above mentioned tips then you can simplify the complication of managing financial transactions. Sometimes, it might not be possible to hire another professional in your company. But, you must remember that hiring a profession is definitely going to make a huge difference. Hiring a professional will keep your stress at bay because they will maintain all records and keep your information up-to-date.
Moreover, a professional is well equipped with knowledge to know about the appropriate tax payments, the potential fees, the loopholes which are critical for business, as well as the additional tax deductions. Not only that, a professional will cater to your needs of profits and savings to uplift your organisation.
Glance at the top software
If you are one of those entrepreneurs who believe in doing everything on their own and building your business with your own potential then here are some of the most amazing financial accounting softwares that is going to help you achieve the best results for your start-up.
- QuickBooks enterprise
- Zoho books
- Sage50 Cloud
- Sage Intacct
Most of the above apps come with a free trial period. So, make the most of it and try to understand the best app which suits according to your requirements. Moreover, you must go through the reviews to understand the basic structure and functioning of each app.
Well, practically speaking, even start-ups and small businesses can benefit from automated financial reporting. There are a lot of things which you must consider while you start using accounting software; go for a cloud-based accounting package which is single purpose rather than any complex ERP suites, because time is money my friend!
For example, FreshBooks is one of the best cloud solutions which are mostly suitable for small companies. The main purpose of this software is to streamline the tracking and invoicing of the financial transactions.
It allows the user to collect all the payments online, and it also has superior analytical features. The other softwares are equally commendable and they often focus on collaborations for keeping the team connected. Not only that, these softwares will also assist in the front-end and back-end processes which account for the financial condition of the business.
So, guys stop getting second thoughts and avail all the info and tips for your very own start-up. It is time to embrace financial accounting as a tool to uplift and grow your business!
About the author:
Evelyn W. Minnick is one of the most reputed professors who has been guiding a lot of students for managing their personal finances and financial accounting. She is known for her unique and innovative methods of teaching. She has more than six years of experience and has an MBA degree from Harvard Business School. Her friendly approach and expertise in financial management and accounting makes her one of the student’s favourites. She is also a reputed blogger in the financial accounting and management stream. Not only that, Michelle is quite popular for her easy to understand language as well.