5 Essential Small Business Accounting Hacks
Small business accounting for people who aren’t accountants can almost be the end of them and their fledgling businesses.
Being overwhelmed and freaking out is NOT what you signed up for! It’s such a shame when entrepreneurs let this get to them, when with the right know how and systems this can be easily avoided.
Creatives especially are susceptible to going down due to their accounting stresses although this is (unfortunately) very common amongst all entrepreneurs.
Running a small business is tough and so many close their doors every day due to not being able to meet their legal requirements.
In Australia for a company it’s illegal to operate if they are unable to pay their bills so keeping an eye on your cash flow is CRITICAL to your survival.
Here are 5 things you can do to right now to improve your business’s financial health.
1. Keep Business and Private Bank Accounts Separate
As a professional bookkeeper I can’t tell you how many businesses still don’t do this!
OMG it makes ME shudder so I can only imagine how much stress and confusion it adds to my poor business owner’s lives.
This one thing will cost you loads of money specifically in two main areas:
- Missed deductions
- Accountant fees
Your business accounts can get lost in the tangled mess of your combined accounts. You may even forget what you purchased and if you haven’t got a system for keeping track and things can get missed.
My accountant buddies will hate me but they are expensive and you don’t want to pay their fees to sort out this mess. You need to keep your business and personal accounts separate if you want to avoid this pain!
You have two options here:
- Employ an expert
IF you DIY then you’ll need to start logging your business transactions in your accounting software or in Excel. Record them somewhere organised at least so you can start making headway.
Then you need to open a business account ASAP and link a debit card to it so you can use your business money more conveniently. Then you’re good moving forwards.
If you just can’t face it then hire a bookkeeper (like me) who will have you sorted and happy again 🙂
Compared to the cost of an accountant their fees are usually very reasonable. They are an awesome support for you moving forward as well if numbers make you want to vomit lol.
2. Get Organised
An efficient system takes most of the decision making out of your hands and puts your workflow on autopilot.
It’s brilliant because all of your obligations are met effortlessly and you’re not hassled anymore.
How do you do this?
A few ideas:
Handle the mail once – open the bill, check you’re happy with it, enter the bill and payment date in your accounting software. You could try a reminder in your diary or phone (Siri anyone? Love that girl!) and file that sucker.
For receipts like fuel that are highly likely to get lost, have a plastic pocket in your car to put them in as you buy things.
Then enter them all at one time at the end of the month before you reconcile the bank account and file the pocket with your monthly accounts.
Set up recurring transactions in your bank account / accounting software to auto post.
Things like rent, internet, power that can be set up on direct debit. Makes your life waaaay easier!
Write down your major deadlines eg Taxes, Payroll expenses in your diary system and set up reminders.
3. Customer Billing
Write your own invoices at the time you perform the service so you don’t forget! If you have a retail type business you’re cool as that will happen automatically.
If you send out accounts do this immediately because the sooner they have it the sooner you get paid!
Once a month call the stragglers and then keep an eye on the services you offer to them in the future until they get a bit speedier with payment.
Managing customer expectations via contracts is highly recommended to stop sneaky people using and abusing your generous nature.
High maintenance clients can cost you so much money as your hourly rate is eroded for all the administration they cause.
A clear and firm contract from the get go gives you something to refer back to and a reasonable reason to ask for further payment for requests outside its scope.
4. Keep an Eye on Your Coin
As mentioned above cash flow is king (queen!) and without money on hand to pay your bills when the due date arrives means you’re in big trouble.
If you are a fledgling business and you haven’t had a full year of operations behind you I recommend keeping 30% of every dollar you earn aside for taxes.
In Australia we have GST to pay as well (10%).
Typically when you first start a business you are paying out way more than you are earning so GST is not generally an issue until you’re earning consistently.
Map out your big expenses on a physical calendar or in Excel so you can see where your hot spots are for your cash flow.
5. Don’t Put Your Hand in the Till
Don’t make the mistake of thinking the business money is your money. Sadly this just isn’t the case :(.
While you may have a great month this month you may need to retain funds to meet an expensive month next month.
Spending it now will just make you sad later. Sorry.
Just take your basic living expenses initially and wait until your accountant says it’s ok before drawing on profits.
You’ll get to know the usual ebb and flow of your business after the first year so you can relax knowing you’ll get paid, eventually.
Speaking of which, don’t forget that when setting your rates initially you’ll need to account for all the benefits you’ve given up along with your 9-5.
Things like retirement & personal income taxes still need to be paid as do things like travel to clients etc so when setting your rates make sure you take this into account and charge accordingly.
So there you have it 5 ways I hope will help you tame your business finances and bring some peace into your life when it comes to your accounting.
To recap they are:
- Separate bank accounts
- Get organised
- Customer billing
- Watch cash flow
- Don’t put your hand in the till.
Are there any systems you use to make your life easier? We’d love to know. Leave a comment below.
Still confused? Send me an email at firstname.lastname@example.org with your biggest problem right now and I’ll help you out so you can get unstuck and moving forward again.