Top Five Accounting Best Practices Your Business Should Follow
To run a successful business, you must keep a thorough record of your numbers. Through diligent accounting, you can ensure your company is viable and your cash flow never throws you a curveball.
To that end, a company without accurate financial information—both past and present—to guide its business decisions is like a ship without a map; you may reach your intended destination, but the journey will be a lot more perilous.
So, what can you do to make sure that your company’s general ledger is accurate and up-to-date? You can implement sound accounting practices from top to bottom.
#1 Pick Your Accounting Method
Practically every business chooses one of two primary types of accounting methodology: accrual or cash basis. What you select depends on your specific business and when you prefer to recognize revenue and expenses.
The cash method immediately recognizes each component, whereas the accrual method looks toward the horizon, focusing on anticipated revenue and expenses.
Let us break them down a little further:
- Accrual accounting – This method tallies revenue when it is earned. It records revenue when the good or service is delivered to the customer. So, the revenue is added to the ledger before the client has paid. But the expectation is that it will be paid. With accrual accounting, the ledger includes accounts receivable and payable, painting an accurate picture of the company’s financial status and profitability.
- Cash basis accounting – This method is more straightforward since it only accounts for cash that has either been paid or received. Smaller businesses adopt cash basis accounting for cash flow tracking. However, it typically does not provide the same long-term clarity that the accrual method does.
As your company scales and complicates, accrual accounting can be an effective stratagem to create clarity on your financial position. This grants you the vital insight needed to make the wisest financial decisions possible.
#2 Record Every Expense
As a growing business, you must label and categorize every single expense in tandem with your cash flow tracking. This creates visibility for your financial health while empowering your company to maximize its taxable write-offs and credits.
Traditionally, accounting has been conducted using manual recording processes and spreadsheets. But this is no longer a viable business practice. Not when technology has made it easier to quickly and accurately record all of your financial data.
As the Small Business Chronicle notes:
Accounting software benefits include increased accuracy by reducing or eliminating human errors in calculation. Manual bookkeeping processes involve making a lot of mathematical calculations by hand. An incorrect calculation early on in the process could have a great impact on the end balance. Computers, on the other hand, are virtually incapable of making such errors.
For starters, you should integrate basic accounting software like QuickBooks or Xero. Then, as your business grows, you can graduate to a larger ERP like NetSuite or Sage Intacct. These platforms are capable of:
- Tracking income and expenditures
- Categorizing expenses
- Analyzing financials
- Sending and paying invoices
- Generating reports
- Providing valuable financial insights
Whatever you choose, an accounting software system will optimize your accounting workflows, eliminate costly errors, and give your business greater visibility and control over its finances.
#3 Separate Personal Finances From the Business’
It can be especially easy for your personal and business finances to intermingle in the early stages of a small business’ life cycle. But this crossover prevents you from having an accurate picture of your company’s financial health.
In other words, stop doing it.
An inaccurate recording of your company financials can lead to potential cash flow, tax filing, and auditing problems. Mingling your business and personal finances could also impact your limited liability if you are registered as an LLC or corporation.
By keeping these accounts separate, you will benefit your company in several ways, including:
- Easier cash flow tracking
- Higher accounting accuracy
- Simpler tax filing
- Improved long-term financial forecasting
#4 Outsource Professional Help
Every growing company reaches the stage where the business owner can no longer be the person in control of recording and managing company finances. With growth, accounting becomes nuanced, complex, and time-consuming. At some point, you need a professional accountant whose sole job is to bear the burden of recording, organizing, and evaluating your company’s financial integrity.
A professional accountant provides expertise that improves bookkeeping time and accuracy. They can help steer your company towards fiscal health while also providing a wealth of knowledge on fees, loopholes, and tax deductions.
Today, you do not need to hire an in-house or full-time accountant. Instead, you can outsource these services to a team which can tailor their offering to you. Need an accountant for three days a month? Perfect. Need an accountant to call upon at will? You can outsource.
To that end, benefits of outsourced accounting include:
- No need to hire a full-time, in-house team – Hiring a full-time employee is costly. Expenses include hiring, onboarding, training, salary, and benefits. Outsourcing allows you to hire someone who can come in and hit the ground running without any of the additional costs. Additionally, you can use them on an as-needed basis rather than paying them year-round.
- Access to professionals – Third-party accounting providers come with a wealth of knowledge and experience. They have likely previously worked with businesses in a similar position to your own. This knowledge can help them steer you down the right fiscal path.
- Create operational efficiencies – When you are not spending time on your bookkeeping, you can focus on what matters most—scaling the business. Outsourcing your accounting empowers your operation to optimize its workflows.
#5 Backup All of Your Records
Fortunately, most modern accounting software is cloud-based, meaning that there’s always a virtual record of your books in the cloud. Despite, you should still make sure that there is always also a hardcopy backup of the ledger or a paper spreadsheet. This way, you protect your business from both physical and digital threats.
CFO Hub—Your Accounting Team For Hire
When your records are accurate and fastidiously maintained, your business’ foundation can support the structures you plan to build. By following the best practices mentioned above, you can position your company for success.
So, do you need help with your accounting? Have you considered outsourcing these services?
If so, CFO Hub is here to help. We focus on matching growing companies with the expert financial professionals they need in their current maturity. Whether it’s an accountant, an accounting team, a controller, or a CFO, we provide comprehensive financial and operational support so that you can meet the most complex of challenges.
Want to see how an outsourced accountant can improve your company’s financial health? Great. We’re ready to show you.