The accounting side of your SME or NFP business can sometimes be the most tedious and time-consuming, but it is, of course, a necessary part of managing a business.
Setting up good accounting practices can help relieve this burden, and allow you to concentrate on the success and growth of your company. Here are 10 quick tips to help your SME or NFP run a little smoother.
- 1. Set up separate business bank accounts. Keep business & personal records separate.
- 2. Reconcile your bank account monthly.
- 3. Keep money aside in a separate interest-bearing bank account for taxes.
- 4. Track your monthly income and expenses, and maintain a cash flow spreadsheet.
- 5. Compile a financial statement (budget) at least monthly.
- 6. Ensure you send out customer invoices promptly – preferably weekly, but no later than monthly.
- 7. Follow up outstanding debtors regularly (eg. phone, send emails and statement of accounts).
- 8. Determine what accounting software program works best for your business.
- 9. Establish a relationship with your banker.
- 10. Consult with an accountant regularly before you start, and afterwards.
1. Set up separate business bank accounts. Keep business & personal records separate.
There is no legal requirement for separate bank accounts for sole traders, but we recommend it for easier tracking of all business transactions.
Partnerships, companies or trusts, must legally have a separate bank account.
2. Reconcile your bank account monthly.
This is good practice as it helps you to keep your accounts up to date, which can quickly get out of control as the financial year goes on. It also identifies data entry mistakes and missing transactions ensuring that your financial statements and tax reporting are accurate.
3. Keep money aside in a separate interest-bearing bank account for taxes.
By putting the money aside, usually 20-35% depending on if your business charges GST, it helps to manage your cash flow. There will be no surprises when the tax bill comes in and as a bonus, you can earn some extra income from the savings.
4. Track your monthly income and expenses, and maintain a cash flow spreadsheet.
By tracking your income and expenses, you may highlight areas of your business that are going well, and others that need improving.
A cash flow spreadsheet goes one-step further, giving you a snapshot of business income and expenses, and indicating the payment cycles and seasonal trends that will require more or less cash.
It can be a valuable tool to help plan ahead and ensure you have enough cash every month. Read more about creating a cash flow statement, and download a free Excel template, here.
5. Compile a financial statement (budget) at least monthly.
A business budget works the same as a household budget, it allows you to plan and manage your business’ financial performance. When the budget is compared to actual expenses and income, it highlights the leakages and the areas where you have saved money.
This is useful for planning and business decisions such as the purchase of assets, employing staff and investments.
6. Ensure you send out customer invoices promptly – preferably weekly, but no later than monthly.
The quicker you send out invoices, the quicker you will receive payment. Be sure to include your electronic payment details on each invoice and offer credit card payment if appropriate; make it easy for customers to pay.
Set up a process so the invoicing is accurate and occurs on a regular basis. This helps in managing cash flow and reduces a lot of the stress in managing a business.
7. Follow up outstanding debtors regularly (eg. phone, send emails and statement of accounts).
The longer an invoice is outstanding the harder it is to chase for payment. Be consistent and set a standard so your customers know you will chase them for outstanding amounts.
Debt collection and legal action is an expensive avenue to follow.
8. Determine what accounting software program works best for your business.
Choose your accounting software carefully, ensuring the software is easy to use but also meets your business needs today and grow with your business. Ask other businesses which software they use and what they like or dislike about it.
Your accountant has experience in using all types of accounting software and can help you to choose the right one that covers all aspects of your business.
9. Establish a relationship with your banker.
A relationship with your banker builds trust, and with this may come a financially beneficial partnership.
Your banker can help your business by providing better interest rates and loan terms, lower bank fees, a higher level of customer service, and long-term financial vision and planning.
10. Consult with an accountant regularly before you start, and afterwards.
An accountant is a great business partner to work with. At the start, they can help you advise the best setup for your business, ensuring your legal and regulatory obligations are met, as well as considering your business needs now and in the future.
Once the business is set up, they will work with you on tax compliance, accounting software, business strategy, inventory control, business expansion, purchase of assets and company regulations – working towards, and helping you and your business succeed!