Small Business Accounting Tips and Tricks for UK Entrepreneurs

Every small business accountant must follow basic accounting guidelines to ensure strong financial management practices. These include:

Separate business and other expenses.

One of the starting steps a small business accountant should take is making a business bank account, which it can do after getting its Employer Identification Number, or EIN (sole owners can instead try with their social security numbers). Business bank accounts offer several things better than personal ones, including:

  • Making it easy for the business to track and substantiate business expenses to take benefit of tax deductions.
  • Offering personal liability shield by keeping business funds separated from personal ones.
  • Providing the option to make a line of credit that the business can use to cover cash gaps.

small business accountants should open a checking account, interest-paying account, credit card lines, and merchant services account, which would let the company take credit and debit card transactions from people.

Get bookkeeping software and a small business accountant.

Bookkeeping is the organized method of tracking all income and expenses. It’s a major component of financial management that ensures business owners and small business accountants have the data they desire to make sound business decisions. For many small business owners, accounting is outside their skill sets. Hiring a person dedicated to the job or, for smaller businesses, outsourcing the job is often a wise investment.

Accounting software helps to make automatic previous tedious bookkeeping tasks that are time-consuming and error-prone if completed manually, making it easier to find all that information to complete financial statements. Small business accountants are finding a lot of success with cloud-based accounting software, particularly with more than fifty percent of U.S. respondents surveyed by Socialpod reporting their companies use either part or only cloud-based technology for accounting and finance. Although most businesses begin with basic accounting software, as they grow and become larger, they may need to put money in an enterprise resource planning (ERP) system. Once a business has an ERP system, it can add things for other business things, with everything tied to one database.

Develop a budget.

One of the first things in creating a business idea is coming up with revenue projections and a list of anticipated expenditures and comparing that budget to actual expenses and revenue, and hiring a small business accountant. A paper reported that more than 60% of businesses with great financial health always built a budget and started a different bank account for paying salaries. Less than five businesses with bad financial health engaged in these kinds of financial management practices.

Keep accurate records with a Small Business Accountant. Recordkeeping is one of the most critical responsibilities for a small business accountant. Accounting software can take care of much of the recordkeeping process and digitally save financial records. That makes it easy to document a transaction’s amount, time, place, and business purpose when you claim expenses as tax deductions. In general, IRS requirements mandate keeping the records for at least three years—small business accountants recommend keeping them for seven years. But a few things worth calling out for small businesses and startups include:

Expenses are the costs you are faced with when trying to operate your business. Records include checks which are no longer valid or other papers showing proof of payment/electronic funds moved, cash register tape receipts, account records, credit card receipts, and statements and invoices.

Choose an accounting method.

Every small business accountant and business startup must decide on a set of rules for figuring out when to report revenue and expenses. This shows a consistent accounting method for tax purposes. Under changes set in place by the Tax Cuts and Jobs Act, tiny businesses with $25 million or lower than that in annual gross receipts for a few prior tax years can choose between accrual and cash basis accounting. However, many companies prefer this method because Generally Accepted Accounting Principles (GAAP) require accrual accounting.

Cash basis accounting can be more straightforward for small business accountants because revenue is recorded when payment is received. Similarly, expenses are deducted when the money comes from the company’s account. Accrual accounting notes the sales when a product ship or service is sent. In a retail setting, a sale is noted at the time of the purchase, and in some industries, revenue may only be recorded for a few weeks or sometimes months after the sale. 

Keep the books up to date.

Without maintaining the books currently, owners and employees do not have a wonderful idea of the company’s financial status. Automating receipt and invoice generation is one way to ensure that the details are always up to date. Another important step is to connect the bank accounts with your accounting software and hire a small business accountant. Businesses can download credit card and bank records and manually import these as CSV (Excel). Still, some accounting systems offer a plug-in to pull information from the bank account and automatically look at daily bank transactions and statement files. The business can define the related rules in its system to reconcile the statements, which improves the reconciliation process and makes it much easier. Some accounting software offers direct connection to banks, so the business manager can manage and complete all bank-related tasks in the accounting system without logging into their bank account portal.

Optimize AP terms and invoicing.

To cling on to cash longer, take benefit of credit terms from major suppliers. Pay bills on a timetable that maximizes the cash flow, and where possible, pay early with businesses that offer a discount for doing that. To ensure steady cash flow, do all things possible to encourage on-time payment from customers. Accounting software by a small business accountant that can automate invoice-making processes by automatically mailing out bills and follow-up emails could also help prevent due invoices from piling up.

Separate accounting functions.

Public companies should follow regulations that require controls to ensure the segregation of duties. small business accountants are more likely to have a single person handling many accounting functions, which creates an environment that introduces the risk of accounting fraud. However, owners can minimize this risk by implementing simple controls. One effective control is to make sure that the same person who cuts the checks does not sign the checks and manage the bank statements.

Keep an eye on certain high-cost outlays.

Labor costs are the largest head for many tiny businesses, and what they have is often another. To reduce labor costs, many small businesses outsource work to contractors who bill hourly. This can be cheaper due to the fact that the contractors might not need 40 hours/week to complete your work and do not require perks. Time-tracking software will help leaders understand how much certain tasks cost, enabling the business to budget better and find ways to control these expenses. Small business accountants can lower inventory costs by tracking inventory carrying costs, inventory turnover ratio, the amount lost to old inventory, and other key metrics.

Plan for major investments.

By tracking expenses and revenue consistently, the business can show the best time for large investments and create the credit it may need to cover the cost. Business credit cards do help an organization make a credit history so it stands a better shot at qualifying for financing (and better financing terms), including lines of credit that they have on offer and loans when it needs more capital. Securing these funding sources is important to a company’s overall financial health—almost half of businesses with excellent financial health secured loans or credit cards from a bank, as opposed to just 3% of businesses with poor or below-average financial health, per the Federal Reserve study. Credit cards also offer the business perks, such as business rewards or travel ones.

Carefully monitor tax preparation.

The tax guys generally require that sole proprietors, partners, and S corporation shareholders make calculated tax payments 

Seek professional tax preparation help.

S says that one in three small businesses reported having spent more than 40 hours yearly on federal taxes. Unsurprisingly, roughly two-thirds of small businesses pay an external tax small business accountant to handle their tax stuff. There are even more advantages here for a sole proprietor, as the cost of hiring a small business accountant to prepare your business’s tax return is deductible.

Small business accountants and business startups increase their likelihood of success by establishing robust accounting processes from the beginning. Studies indicate that the more often than not a small business accountant reviews its financial numbers, the better its financial health should ultimately result in long-term success. Although bookkeeping is not the forte of most small business accountants, they must frequently review these critical financial metrics to capitalize on growth opportunities and ensure their business is not on a path to insolvency.

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