If you’re running a small business, it’s crucial to stay on top of your financials, which means recognizing the warning signs that lead to negative cash flow. Being able to recognize these signs and avoid a bad financial situation depends on how well your business maintains its books and does its accounting.
With that in mind, we’ve prepared this piece with a guide to the best accounting practices for your business to adopt. Take a look.
1. Establish and Stick with an Accounting Method
When it comes to accounting, you have two methods to choose from:
- Accrual method: The accrual method involves recording transactions in your books as soon as they’re made. Likewise, every expense is recorded as it happens. When using the accrual method, invoices and revenues need not be paid before you record them in the books.
- Cash method: On the other hand, the cash method involves recording revenue when you receive cash and recording expenses when you pay the bills.
2. Remain Financially Informed
Whether you have an in-house accountant or you’ve outsourced your accounting, you need to be able to read and understand financial reports. This will help you gain better insights into the business’s financial position at any given point in time. Better insights will help you make better decisions.
Important financial reports include:
- The cash flow statement
- The balance sheet
- The profit and loss, or income statement
3. Keep Track of Everything
When you start out your business, things will be easier to keep track of on a spreadsheet. But as your business grows and you have to deal with more complex figures consistently, you’ll need a better solution. Consider hiring a professional bookkeeping and accounting services provider to help you maintain detailed records of every transaction, as well as interpret, analyze, and summarize all that information.
4. Limit Accounts Receivable
Many small businesses often get excited when they land a new client, but it’s important to understand that a sale is not income until money is exchanged. Your business may have the right policy, but it may not be enforcing it. You should monitor your accounts receivable and limit it to make sure that you don’t borrow money when you don’t have to.
Consider setting clear and consistent credit policies, requesting a portion of payment upfront, and/or setting up automated email messaging that reminds customers to pay.
We are a premium bookkeeping services provider based in Duluth, GA, that provides payroll services, bookkeeping data entry services, sales tax return services, and tax preparation services for small businesses.
Get in touch with our team at 3Alpha LLC for more information.