Managing The Numbers: Basic Accounting Tips For Those Just Starting Out

It's tremendously exciting to launch your own business. However, there is a lot of paperwork and what seems like an unending amount of figures to deal with in addition to all the planning and enthusiasm.

Basic accounting is essential to maintaining the organisation and efficiency of your business, but it can also be intimidating for individuals who have never done it before.

It might all appear very overwhelming to someone who is just dipping their toes into accounting. You have to keep track of a lot of figures and financial reports. But relax, it's not as difficult as it seems. Here are some fundamental accounting pointers to get you started.

1. Accounting for small businesses

For young firms, being cash-strapped is the default situation. But even if you're launching a tech startup and have the good fortune to receive generous funding and the ability to hire professionals to handle your accounting, I would still contend that you still need to be familiar with basic accounting to at least have an understanding of what is happening with your company's finances.

An employer wouldn't exactly find comfort in a business owner who doesn't know where the money is coming from and going.

You should brush up on your accounting skills while your company is still tiny because at that stage, your financials won't be as complex as those of a Fortune 500 company.

If you've engaged a tax professional, ask them to walk you through the fundamentals as you go so that you'll be able to handle these situations on your own in the future. On the other hand, if you're running your business alone, you might utilise the following fundamental accounting advice to manage your company's finances.

2. Keep records of everything

While it's normally simple to keep track of your finances through your company's bank account, it's far from being as thorough as it should be.

To easily monitor and manage your finances, you must have all of your financial documentation in one location, including transaction records, receipts, invoices, and other related documents. Planning taxes is also made simple by having everything in one location because you won't have to search for if something is missing.

For this purpose, you might use a variety of cloud accounting software, some of which are free but most are not. However, it's also a good idea to preserve an offline backup and any physical records that you may have.

To aid you with categorisation, it can be a good idea to become familiar with some fundamental accounting terms before you set things up. To determine where the majority of your money is going, it is crucial to divide your spending into a variable, fixed, intermittent, and discretionary categories.

3. Categorise your receipts properly

The second stage, building on the previous point, is to organise your records by date and store them in their proper locations.

In order for your digital and physical receipts to coexist without having to constantly switch between your computer and your ledger, physical receipts must first be scanned to ensure that they will be preserved for posterity.

When you decide to audit your records in the future, it may be helpful for you to add notes to the receipt itself so that you will remember what it was used for.

4. Keep donation and charity receipts

Kindness may be own reward, but it may also result in real tax advantages for your company. Always make it a point to get in touch with the receiver and ask for a receipt of the donation, presuming your donations adhere to the specifications outlined by the ATO.

Asking for proof of your good deed may seem a little impolite, but reputable charities typically offer these services, so don't be embarrassed to ask.

5. Periodically update your profit & loss (P&L) statements

A P&L statement is essentially the simplest way to keep tabs on how well (or, God forbid, how poorly) your business is performing. If your business is just getting started, it's a good idea to create monthly P&L statements to determine whether things are going well or not.

Making quarterly or yearly statements may be prefered for companies that are more stable or those in industries that have periods of inactivity.

You can determine if your company has advanced or regressed by comparing P&L statements from two distinct periods. A P&L statement is helpful for tracking the financial impact of significant changes to your firm when or if they have recently occurred.

Even though it's more thorough than the balance sheet and cash-flow statements, it still doesn't provide a complete picture of your business. However, using all three should be able to give you a thorough understanding of how your business is performing.

6. Small Business and Startup Accounting Tips

1. Keep your personal and professional finances separate

Open a business bank account as soon as you have your Australian Business Number (ABN), New Zealand Business Number (NZBN), Philippine Business Number (PHBN), Hong Kong Business Registration Number (BRN), or Singapore's Unique Entity Number. This is one of the first things a small business should do (UEN). Compared to personal bank accounts, business bank accounts provide the following benefits:

• Making it simpler to keep track of and support business costs in order to benefit from tax benefits.
• Providing personal liability protection by keeping personal and business funds apart.
• Giving the business the choice of a line of credit it can employ to fill in cash shortfalls

Businesses should open a merchant services account, a transaction account, a savings account, a credit card account, and others to enable them to accept credit and debit card payments from clients.

2. Purchase accounting software (and a bookkeeper)

Bookkeeping refers to the organised procedure of maintaining a record of all payments and receipts that have been made. One of the most important aspects of financial management is making sure that business owners have all of the information they require to make informed decisions about their companies.

As a result of the fact that many owners of small businesses do not possess the accounting expertise required, it is frequently a wise investment to engage someone particularly for the task or, in the case of smaller organisations, to outsource the function.

Accounting software streamlines manual bookkeeping procedures that are time-consuming and prone to error. It also makes it simpler to locate data needed to compile financial accounts. Cloud-based accounting software is very successful for small firms, and APAC is the region with the fastest growth in cloud spending, which is predicted to treble by 2023.

Although the majority of firms begin with simple accounting software, as they expand and become more complicated, they may need to invest in an enterprise resource planning (ERP) system. When a business has an ERP system in place, it can add modules for other business operations, all of which are connected to a single database.

3. Create a budget

Making revenue forecasts and a list of anticipated expenses is one of the first steps in writing a business plan. The budget is then compared to actual costs and income. In a recent study of JAPAC entrepreneurs, 40% of those whose companies failed identified poor business planning as the main cause of their failure. A successful small business requires careful planning.

4. Always make sure your company's records are accurate

One of a small business owner's most crucial duties is keeping records. Accounting software can digitally store financial records and automate a lot of the record-keeping process.

In order to claim expenses as tax deductions, it is simple to provide documentation for the sum, date, location, and business purpose of a transaction. However, there are different regulations throughout APAC. For example, Singapore wants you to keep your financial records for five years, whereas the Philippines requires ten.

Consult an accountant for recommended practises and adhere to your nation's record-keeping regulations. However, a handful stand out for startups and small businesses, such as:

• The cash register tapes, deposit data (for both cash and credit sales), receipt books, and invoices are all contained inside the records. The money that you make from your company is referred to as its gross receipts.
• Invoices, cancelled checks and other paperwork indicating payment or electronic funds transfers are all examples of records of expenses. Other examples of records of expenses include account statements, receipts and statements for credit cards, cash register tape receipts, and account statements. The costs that are incurred as a direct result of running your company are known as expenses.

It is made simple to digitise receipts and invoices for the purpose of convenient tracking by receipt scanners, which automatically map the contents of receipts and invoices to specified fields in accounting software.

It is possible that accounting software comes with its own mobile app or supports the use of a third-party app that enables employees or business owners to utilise the camera on their smartphone to scan receipts. These applications make use of a technology known as optical character recognition (OCR) in order to transform human-written text into a form that computers can comprehend.

• For the purpose of calculating annual depreciation and gain or loss upon sale, fixed assets must be reported.

Asset papers include receipts for purchases and sales, real estate closing statements, cancelled checks or other records that show the payee, the amount paid, and the date the funds were moved electronically, as well as credit card receipts, statements, and invoices.

Amortization is the process of writing off over time the costs associated with making a purchase of an item that has a finite lifespan. Other kinds of assets, such as those with a short-term or an infinitely long life, are not subject to depreciation or amortisation in any way.

5. Select an accounting technique

Every small firm and startup must select a set of guidelines — accrual or cash accounting — for determining when to report income and costs. For tax purposes, this offers a uniform accounting technique.

Accrual accounting, which records the sales when a product ships or a service is provided, is necessary for many large or publicly traded organisations. A sale is recognised when a product is purchased in a retail context. In some industries, revenue may not be reported for several weeks or even months after the transaction. Double-entry bookkeeping is necessary.

Accrual accounting offers a more accurate picture of a company's financial situation since it takes a long-term perspective on the firm. Cash-based accounting, however, may be prefered by smaller companies and sole proprietors as it can be easier to administer as revenue is recorded as payment is received. When money leaves the company's account, costs are also subtracted.

6. Continue to update the books

If the company's accounts are not kept up to date, it will be impossible for the owners and workers to gain an accurate picture of the company's financial status. Automating the process of capturing receipts and invoices is one method that can be utilised to guarantee that the books are kept up to date at all times. An additional step that is very necessary is to integrate your accounting software with your bank accounts.

Downloads of bank statements and credit card statements can be imported manually by businesses as CSV files (Excel). On the other hand, certain accounting software packages come with a plug-in that may automatically retrieve daily bank transaction and statement files as well as information from your bank account.

If the company takes the time to define the matching rules in their system, they will be able to significantly streamline the process of reconciling the statements. Due to the direct interface that some accounting software provides to banks, the owner of the company can manage and carry out all banking responsibilities within the accounting system without having to log in to the online banking portal for their bank account.

7. Improve AP terms and billing

Take advantage of the credit terms that your most critical suppliers are offering to retain more cash on hand for longer. You should try to pay early with vendors who offer a discount whenever you can, and you should pay your bills according to a timetable that is designed to maximise your available funds. In order to ensure that there is a consistent flow of cash, you should use maximum effort to persuade customers to make payments on time.

Incentives for quick payment, reviewing the credit history of new customers before conducting business with them, and, if required, cancelling credit arrangements are all examples of strategies that fall under this category. It is possible that accounting software that is able to automatically send out bills and follow-up reminders while the process of invoicing is being carried out can also assist in preventing unpaid debts.

8. Independent accounting operations

Laws that mandate the implementation of certain safeguards to ensure that separate functions are carried out are obligatory for publicly traded companies. Because of this, small businesses are more likely to have a single individual executing a range of accounting activities, which presents the risk of accounting fraud. However, these businesses are more likely to be owned by sole proprietors.

The threat can be mitigated by the owners through the installation of a few elementary safety measures. An efficient control is one in which it is made certain that the person who gives final approval to bills does not also pay those bills or reconcile bank statements.

9. Pay attention to certain expensive expenses

The costs associated with labour make up the bulk of a small business's greatest overhead, with inventory typically coming in a close second. To save money on labour expenses, a lot of smaller businesses turn to independent contractors and consultants who bill by the hour or by the project.

If the task can be completed in fewer than 38 hours per week by the contractors and the workload can typically be increased or decreased according to the requirements, this may be a less expensive option. In addition, software that tracks time can be used to aid managers in determining how much specific jobs are costing the organisation. This provides the business with the ability to better budget its resources and locate ways to cut costs.

Businesses are able to cut their inventory expenses if they pay attention to the carrying costs of their inventory, the inventory turnover ratios, the amount of money lost due to obsolete goods, and any number of other relevant aspects. Because the restrictions for employing independent contractors and consultants vary from market to market, it is important that you speak with your legal counsel to ensure that all contracts are written in a way that complies with the local industrial relations legislation.

10. Make substantial investment plans

By keeping close tabs on both its income and its outgoing expenditures, the company can ascertain the right time to make significant purchases and predict the amount of credit it will need to be able to afford those purchases. A company's credit history can also be assisted in the developing process by using business credit cards. As a consequence of this, it has a better probability of being authorised for financing whenever it has a requirement for more funds (and the best financing conditions). Businesses can frequently take use of benefits provided by credit cards, such as travel rewards or business incentives.

11. Pay close attention to tax preparation

Businesses in Australia who pay GST are required to produce Business Activity Statements (BAS) according to the deadlines that apply to the size of your company. Depending on your annual revenue, this might be done quarterly, monthly, or annually.

GST, PAYG withholdings, and other taxes are made easier to report and pay with the aid of BAS. When you sign up for GST and an ABN, the procedure is made simpler because you will immediately receive a BAS when it's time to file!

Businesses in Singapore are required to submit two corporate tax returns to the IRAS each year: the Corporate Income Tax Returns, often known as Form C or Form C-S, and the Estimated Chargeable Income (ECI). Businesses must additionally register for GST, which is subsequently collected and paid as output tax, if their annual revenue reaches $1 million.

Typically, quarterly payments are made for GST returns. You can still voluntarily register for it after giving it some thought if your turnover is less than $1 million. It's crucial to keep track of these!

Businesses must submit cumulative income returns every three months in the Philippines, as well as a final income tax return at the end of the fiscal year. In addition, many goods and services are subject to a Value-Added Tax (VAT), which is levied at a rate of 12 percent. Businesses that earn more than PHP3,000,000 yearly are required to register for VAT, though those with lower incomes may do so voluntarily. Businesses that owe VAT typically have to submit monthly and quarterly reports. Keeping an eye on these is crucial.

12. Look for expert advice on tax preparation

Given the time required, it is not surprising that the majority of small businesses rely on an outside accountant or tax advisor to assist them with their tax preparation. For a sole owner, there are even more advantages because you can deduct the expense of employing a tax professional to prepare your company's tax return.

13. Verify the accuracy of the inventory data

The company needs precise inventory data to create financial accounts. Both the inventory value in hand and the cost of goods sold (COGS) for the balance sheet must be computed.

Physical inventory is monitored either routine manual counting of the items or matching manual counting with an inventory management system that, if coupled with the point-of-sale system and accounting software, may automatically update the figures as sales occur. It is significantly simpler and more accurate to track inventories with inventory management software.

14. Use financial statements to assess the performance of your business

These three important financial statements are created by tracking expenses and income. A balance sheet provides a snapshot of the company's financial position at a particular point in time, while income statements assist in determining the company's profit (or lack thereof), shareholders' equity is shown on a balance sheet, and the cash flow statement reveals how much cash is still on hand.

The cash flow statement can, however, demonstrate if a business has enough cash on hand to cover its immediate obligations when paired with the balance sheet. To obtain finance or funding, banks and investors need to see all three statements.

15. Produce financial forecasts

Companies may better decide if they will need additional cash or whether they will need to make capital investments with the assistance of financial forecasts, which help them estimate future income and costs. Financial forecasts can also be used by business management to estimate cash flow and determine whether or not changes in pricing or production schedules are warranted.

Forecasts provide critical financial information to parties external to a company in situations where the company is seeking a loan or finance, or is the object of an acquisition. A company can use these projections to create pro-forma financial statements, projected income statements, balance sheets, and cash flow statements. All of these financial statements can be generated using cash flow projections.

The answers to questions that may be posed by lenders, investors, or other stakeholders in the company are offered by projections, which are derived from various methods of financial modelling. They provide key responses to queries such as "If we lend you this money, what will you do with it, and how will you pay it back?"

In Conclusion

Small firms and startups can boost their chances of success by taking steps to set up reliable accounting procedures from the outset. Additionally, research indicates that a small business's financial health improves the more frequently it reviews its financial data, which should ultimately contribute to long-term success.

Even though most small business owners are not particularly passionate about bookkeeping, they must regularly evaluate these crucial financial data to seize possibilities for expansion and make sure their company is not headed towards insolvency.