The proper management of your business’s finances is essential. This is true for established companies, but small and startup businesses, too.
It’s been estimated that about 20% of new businesses won’t make it past the first year, while only 30% will remain open for 10 years after their initial launch. Adhering to the best accounting practices will help prevent cash flow issues that are to blame for many business failures. Keep reading for some accounting best practices to use for your small business or startup company.
Separate Your Personal and Business Expenses
The first step to take when protecting your small business finances is to open a business bank account. This should be done after you acquire your EIN or Employer Identification Number. If you are s sole proprietor, you can just use your social security number.
With a business bank account, you can keep business funds separate from personal funds. You may also be able to take advantage of certain tax deductions and enjoy personal liability protection.
Invest in Bookkeeping Software and a Bookkeeper
Bookkeeping refers to the tracking of all expenses and income. It’s an essential element of financial management that helps ensure you have the information needed to make smart business decisions. For some business owners, accounting is not a skill they have. In this case, hiring a dedicated person to handle the task or, for smaller businesses outsourcing this task is a smart move.
Quality software will help handle time-consuming accounting tasks and ensure there are no errors present. The same is true for a bookkeeper, so it is good to find the option that best suits your needs.
Create a Budget
When creating your business plan, you must determine revenue projections and create a list of your anticipated expenses. Once you have this, you can compare your budget to your actual revenue and expenses. Over 60% of businesses that state they have “superior” financial health have a budget and separate bank account for handling payroll. Under-five percent of the small businesses with subpar financial health did not invest in these two management and planning tactics.
There are more than a few factors to consider when it comes to startup and small business accounting. Be sure to keep the information here in mind, which will help ensure your business is set up for success now and in the future. Being informed is a must when it comes to small business finances.