Posted by: CIEL on Tue, Apr 10th, 2018
Accounting: Key Steps for Business Success
The mere mention of the word ‘accounting’ can send a shudder down the spine of many a business owner or bring a big grin to their face, albeit the latter case is rarer.
Love it or hate it, you cannot run a successful business without keeping track of its financial operations. While you may choose to hire an accountant or outsource it, as a business owner it is imperative you understand the ins and outs of accounting for your business.
If you are amongst those less inclined towards bookkeeping, a good online accounting courses will help you to understand the importance of accounting along with the steps you need to take to ensure financial success.
Why is Accounting More Important than Ever Before?
Maintaining solid account books and records of transactions can be vital to the success of a small business or start up. Accounting lets you keep track of minute financial details that are easy to overlook at the end of a financial year.
It also allows you to monitor the finances of your business accurately and revaluate your business strategies periodically. Apart from allowing for better financial management of your business, here are four more reasons to keep your account books updated:
Tax Obligations: They help you pay the right amount of taxes at the end of the year. Looking at the account books can also guide you in implementing tax saving measures applicable to your business.
Financial Reporting: Investors, financiers and bankers require financial documents like balance sheets, income statements and cash flow records to assess the financial health of your company. Keeping accurate accounts throughout the year goes a long way towards representing your business accurately.
Pricing of Products: Account books allow you to ascertain the profits you are making on particular products or services by looking at the cost plus margins and therefore allow you to reassess your pricing structure as needed.
Legal Requirements: The Companies Act 2013 requires every company to maintain books of account. Furthermore, Section 44AA of the Income Tax Act requires every person whose income from business or profession exceeds Rs. 1.20 lakh or the Total sale/ turnover /gross receipt exceeds Rs. 10 lakh is required to maintain books of account for income tax purpose.
5 Steps you should take for Accurate Accounting
Now that we have established the importance of accounting for your business, let’s look at the steps needed to ensure accurate records.
Accounting Methods: There are two main methods for recording your accounts. They are:
Cash Method: This is the simplest method of record keeping. Every transaction when money changes hands is recorded as it occurs in this method.
Accrual Method: This method records transactions when they are agreed upon regardless of when actual money is transferred from one party to another. It provides a more accurate financial picture as it takes into account all revenues and expenses for a particular period.
Bank Accounts: Keep your business’s bank account separate from your personal one. It keeps your company’s financial transactions separate from your personal ones making them easier to compile while calculating taxes owed. Shop around and look at offers from different banks before starting your account. Different banks may have different charges for checking accounts for businesses. Also consider setting up a business credit card to start building your business credit.
Record Keeping: Make sure you keep all your documents in order. From your business permits and licenses to contracts, invoices and receipts. Keep electronic copies of all documents as well. This will ensure that you have more than one record of the same document making it harder to misplace.
Treat your small business like a large one and make sure you have a well organised process for storing your documents so that they can be recalled at a moment’s notice.
Payroll System: Whether you are the only employee of your firm or you have others, set up a payroll system from the get go. This will help you both personally and for tax saving purposes for your business. It will also help your business stay organised as it grows with a system in place.
Software and Professional Help: There is plenty of software out there to help small business owners with their accounts. You can always, of course keep your records on excel spreadsheets if you are more comfortable that way.
Wave and Turbocash are two examples of free accounting software. Make a list of all the functions you will require and choose the software that suits your needs the most.
Consider hiring a professional accountant if things get overwhelming or simply for guidance. They will help you set up the appropriate company structure for your business and help you get started on your journey.
Remember, while you can always hire an accountant for your company, enlist the aid of software or outsource your bookkeeping to an external firm, it’s best for your business that you know what action needs to be taken.
Learn the essentials of accounting from a series of online courses by banking and finance experts to get holistic training in an engaging manner.