5 Accounting Tips That Can Save You Money

5 Accounting Tips That Can Save You Money

Few tasks strike fear in the hearts of small business owners quite like accounting.

The various duties that go into handling accounting for your small business—compiling reports, tracking expenses, balancing budgets, understanding tax rules and regulations—can make your head spin, especially when your plate is already full with other crucial tasks.

You can’t ignore the intertwined tasks of bookkeeping and accounting, however. Making sure you’re cash flow positive is how you stay in business, so your goal should be to make accounting as manageable, and affordable, as possible.

With that in mind, here are five accounting tips that can save you money and help keep your business running smoothly:

Separate business and personal spending

One of the first things you should do when you open a business is separate your business and personal spending, by opening a business bank account and/or obtaining a dedicated business credit card.

Separating your spending is crucial for a few reasons, including the fact that you’ll maintain personal liability protections in case someone takes legal action against your business.

It’s also an easy step that saves you time and money in the long run. If you need to parse through your personal banking statements to find all your business spending every time you want to run a cash flow report or file your quarterly taxes, you’ll give yourself a headache (or, in another scenario, more billable hours to the accountant you’re paying to help you out). You’ll also miss crucial expenses, setting you up for potentially inaccurate financial reporting, tax filings, and IRS audits.

If you haven’t already separated your spending, it’s time to start.

Become your own accountant with accounting software

There are benefits to hiring an accountant on a temporary or even full-time basis, which we’ll get to below. But if you’re a small operation, it’s easier than ever to handle your own accounting with the help of automated accounting software options.

“Automated” is the key word here. If you’re overwhelmed by the prospect of doing your own accounting, know that there are a variety of accounting software options out there that can do your books for you. You’ll connect your business bank account and let the software (depending on which you choose and what your needs are) do things like track your expenses, send invoices, and run reports with the click of a button.

Best of all, some of these accounting software options are completely free, and can accomplish many of the tasks a small business owner needs without upgrades or, alternatively, with inexpensive plug-ins and add-ons. Once your business grows, you can consider migrating to a paid option, which will be worth the money in its ease and simplicity.

Establish clear payment terms

If your business operates on an invoicing system that requires you to wait for full payment from your clients, you may often find yourself staring at a cash crunch. That’s because sending an invoice is often just the beginning of the process of getting paid.

It’s important that you establish clear invoice payment terms from the get-go, so your cash flow isn’t held up by late payments from customers who don’t understand your accounting needs. No wonder more than one-third of all invoice payments are late, according to Xero.

Before you begin a job, discuss and make clear your payment terms, which should include:

  • Payment due date upon receipt of the invoice (and the sooner you set your due date—one or two weeks is becoming a standard—the sooner you’ll get paid).
  • Accepted forms of payment, from cash to check to credit cards and digital wallets.
  • Late-payment penalties and/or small early-payment discounts.

Don’t be afraid to send reminders (you can sometimes use your accounting software to send automatic nudges to your clients) and follow-up on what you’re owed.

Budget for unexpected expenses

Everyone knows the value of a rainy day fund, in both their business and personal life. This is especially important for small businesses. Major expenses such as dealing with the fallout of a natural disaster or large equipment failure can knock any small business off track.

Case in point: According to FEMA, following a disaster, 90% of small businesses fail within a year if they don’t reopen within five days. Having extra capital on hand will help you get going again.

Build space for unexpected expenses into your budget. The alternatives—closing shop until you can scrape the cash together, or taking out an emergency business line of credit, will cost you in either lost business or interest payments.

Meet with a proactive CPA

As we’ve discussed, small business owners are now more capable than ever before of doing their own day-to-day accounting. In order to make the best long-term financial decisions for your business, however, you should meet with a Certified Public Accountant (CPA).

A CPA—a trained and experienced accountant who had to pass an exam to become certified—can help you address the big-picture accounting questions your business faces.

These questions and tasks might include preparing you for tax season or helping you comply with changes to the tax code. You can also lean on their expertise if you want to take out a small business loan, or if you need to change your business’s legal structure.

If your business is growing and you want to hire employees, a CPA is a great role to fill early. You can also meet regularly—quarterly, or bi-annually—with a CPA to go over your progress.  Use resources like the American Institute of Certified Public Accountants to find a CPA directory. You’ll want a CPA who can review your finances and bring ideas to the table about how to move forward responsibly. A proactive CPA with ideas that translate into real savings or proceeds is worth their fee or salary, and then some.

Accounting isn’t the most glamorous part of running a business, but it may be the most important. Your cash flow is your business’s lifeblood, and having a handle on it—as well as a sense of how to use it—with the above tips will help keep you solvent and sustainable, no matter what comes at you.

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