Your business’s accounting is probably the last thing you enjoy spending time on, so why not take a few steps to make it easier? These nine small business accounting tips can help.
It’s an easy area to overlook. As a business owner, you might look at making your website more effective, improving your management skills, company morale, conserving electricity, and getting the best prices on your raw materials but there’s one place that you might not think twice about.
Your accounting department probably isn’t an area you scrutinize. One or two people sit at a desk all day, shuffle paper, type a lot, and at the end of the day, if bill collectors weren’t calling you, you’re happy.
Or maybe your accounting department is you. You might not be an accountant by trade so you’re always looking for a way to make the act of money shuffling more efficient is welcome. We’re here to help.
1. Consider lockbox processing
If you receive a large amount of customer payments, you’re a prime candidate for lockbox processing. Instead of having payments sent to your business address, they go to a PO box where the bank processes the payments and deposits them directly into your account. The bank sends you electronic records of the transactions that are automatically entered into your accounting software.
If it seems a little complicated, it will be at first but the amount of time saved by not manually processing payments makes the investment of time and money worth the hassle.
2. Improve credit screening
A sale is only a positive for your business if you actually get paid. A customer who doesn’t pay becomes a bad debt and that costs your business money. If you’re shipping product on credit, do a credit check first. Invest in software that will automatically screen customers and put a hold on shipments if their credit looks questionable.
Ask for a deposit or ship COD to avoid the accounting nightmare of chasing down bad debt. Even if you recover the debt, you probably lost money anyway.
3. Rethink how you reimburse employees
The process is often cumbersome. Employees who amass travel and entertainment expenses fill out a form, include a stack of receipts, and submit for reimbursement.
The problem, however, is the errors. Mislabeled codes, addition errors and missing information mean more work for the people processing the payment.
Instead, use an electronic entry system that prepopulates information and allows the employee to scan receipts. All or most of the process becomes automated.
4. Use a purchase card
One employee spends $5 and needs to be reimbursed. Another spends $10 and yet another spends $7. How about the $29 invoice that arrived today? All of these small charges take far too much time for such a small amount of money.
Instead, give key employees and/or departments purchase cards. When they make a purchase, they submit the receipt or invoice and accounts payable matches the receipt to the statement. Instead of multiple checks, they cut only one for the month.
5. Use a standard chart of accounts
Instead of allowing people to code invoices as they would like, make everybody use the same account numbers. When processes are consistent across all employees and departments, the accounts people can process paperwork more rapidly.
6. Make new employees complete all paperwork before starting
Allowing important employee documents trickle in makes it more difficult for HR and accounts payable. Send the employee all paperwork prior to their first day and tell them that it has to be submitted before they start working.
7. Collect or apply taxes immediately
Waiting to do something later invites accounting errors. When employees are paid, account for payroll taxes right away. Same with sales taxes. And pay estimated taxes regularly and on time.
8. Set up separate coding for ongoing projects
If you’re constructing a building, creating new technology or other project that is ongoing, set up separate line items. This allows you to pay bills as needed but gives the project manager clean, easy to generate reports of how costs compare to the budget. Entering costs of the project into the general ledger at a later date means processing the same invoices twice. There’s no need for that.
9. Download bank records daily
If you’re using software like QuickBooks or another accounting software package, downloading transactions from the bank daily is easy and automatic. Not only does this allow you to check for fraudulent activity but it makes generating monthly reports faster. Higher-level managers don’t want to wait until the middle of the month for financial statements from the previous month. Easily solve this problem by doing the work throughout the month while transactions are fresh.
Becoming more efficient often means investing in technology and training. An accounts department running off of manual processes is wasting a lot of time and inviting errors. As an owner, you’re paying them more money to do tasks that could be automated.
Don’t see technology spending as a cost. It’s an investment that will pay you back rapidly.