What is Business Accounting? How to Manage Small Business Accounting?

Business accounting is the systematic process of recording, analyzing, and reporting a company’s financial transactions. It is the backbone of financial management in a business, offering essential insights into financial health and performance. Small business accounting services boost growth by providing accurate financial insights, aiding decisions, ensuring compliance, improving cash flow, attracting investors, and identifying cost-saving opportunities. This solid foundation supports sustainable expansion.

How Can Small Businesses Set Up an Accounting System?

It is important for small businesses to set up a robust accounting framework for proper financial management and regulatory compliance. A robust accounting system can be easily set up by prioritizing four key activities:

1. Open a Bank Account

Every small business must first open a bank account dedicated to your business. An exclusive business account simplifies record-keeping (cash inflow and outflow) and ensures accuracy in financial reporting.

2. Choose an Accounting Method

A proper accounting method (cash accounting or accrual accounting) helps in determining how transactions will be recorded and the way revenue and expenses are recognized. The chosen accounting method must align with the business’s operations.

3. Set Up a Chart of Accounts

Setting up a chart of accounts will help small businesses to organize financial transactions into different categories. This segregation facilitates in systematic tracking and analysis of income, expenses, assets, and liabilities. It is also important to tailor the chart of accounts to the specific needs of the business.

4. Determine the Fiscal Year

Small businesses must determine the fiscal year to establish the period for financial reporting and tax obligations. Aligning the fiscal year with business cycles helps in streamlining reporting processes and in setting up the budgeting and forecasting process.

How to Manage Accounting for Small Business?

Accounting for small businesses can be managed effectively by organizing important accounting tasks on a daily, weekly, monthly, and quarterly basis. This way it is possible to ensure accuracy, compliance, and strategic financial planning. Here is a comprehensive breakdown of these tasks:

Daily Tasks

Recording Transactions: Enter all financial transactions, such as sales, purchases, payments, and receipts, into the accounting system. This ensures that your records are up-to-date and accurate.

Cash Management: Monitor cash flow daily to ensure it adds up at the end of the day. Verify cash receipts and disbursements, ensuring that there are no discrepancies.

Receipts Management: Collect and file receipts for all transactions every day. This documentation is essential for future reference and audit purposes.

Weekly Tasks

Reconciliation: Reconcile bank statements with your business records to ensure that all transactions in the weekdays are accounted for and there are no discrepancies whatsoever.

Accounts Payable and Receivable: Review accounts payable and receivable every week. Follow up on overdue invoices to collect on time and ensure timely payments to suppliers to avoid penalties.

Expense Tracking: Review and categorize expenses to understand them better. This helps in monitoring budget adherence and identifying any unusual or excessive expenditures.

Monthly Tasks

Financial Statements Preparation: Prepare and review key financial statements such as the balance sheet, income statement, and cash flow statement every month. This gives insights into the business’s financial health and performance.

Budget Review: At the end of every month, compare actual expenses and revenues against the budget. This will help to identify any variances and analyze their causes. Once identified, it becomes easy to adjust future budgets accordingly.

Tax Filing and Payments: This involves preparing and filing every tax document on a monthly basis. Some such documents include sales tax, payroll tax, and other local taxes. Doing this every month will ensure timely tax payments and avoid penalties.

Payroll Processing: If you have employees, process payroll on a monthly basis. This will ensure all deductions and benefits are accurately calculated and recorded. This helps in enhancing employee satisfaction.

Expense Reimbursements: On a monthly basis, it is important to process and approve expense reimbursements for employees. In the process, you must ensure all claims are supported by valid receipts and are within company policy.

 Quarterly Tasks

Quarterly Financial Review: Every quarter, conduct a detailed review of the financial statements for the quarter. This helps in assessing the business’s performance, correcting discrepancies, and making strategic decisions.

Tax Estimates: It always pays to calculate and pay estimated taxes on a quarterly basis. This helps in computing and setting aside tax liabilities every quarter and avoiding large payments at the end of the year.

Compliance Check: Review compliance with all relevant financial regulations and accounting standards on a quarterly basis. This includes ensuring that your financial practices align with Local GAAP or US GAAP (Generally Accepted Accounting Principles) or IFRS (International Financial Reporting Standards).

Stakeholder Reporting: Every quarter, you need to prepare reports for stakeholders, such as investors or board members. This will provide them with a clear overview of financial performance and any significant financial events or trends.

Conclusion

Effective small business accounting services require a structured approach with regular tasks spread across daily, weekly, monthly, and quarterly intervals. However, doing it on a regular basis can be a challenge because of the shortage of skilled accountants. Therefore, outsourcing business accounting services to a professional service provider offers an efficient solution for organizations.

By partnering with a small business accounting company like Knowvisory, organizations can set up an accurate accounting system for small businesses, ensuring timely and accurate financial management, covering daily, weekly, monthly, and quarterly tasks. We provide instant access to expert knowledge, advanced technology, and scalable solutions, helping you efficiently maintain the financial health of your organization without the burden of daily accounting chores.

Connect with us and avail the best accounting services for small businesses. We can help you streamline your business accounting tasks like a pro!