When you need to make an informed decision within a business, you need to have all the facts in front of you. Part of these facts are accurate accounting records.
In addition to helping you make informed decisions, effective accounting can also reduce the time you spend on your accounting because the whole process becomes streamlined.
Tip 1 - Have a well-structured chart of accounts
Your chart of accounts helps you keep track of where your money comes from and goes to. Typically, your chart of accounts is made up of:
- Asset Accounts: what the business owns
- Liability Accounts: debts that the business owes
- Equity Accounts: funds introduced into the business and drawings by the owner
- Revenue Accounts: money received by the business
- Expense Accounts: money spent by the business
These top five categories are kept the same, however, you can customise the accounts held within them to better suit the needs of your business.
Having a well-structured chart of accounts can help you make well-informed business decisions because you can see exactly how your finances are.
Tip 2 - Implement forecasts and budgets
You have goals within your business, probably based on business growth and increasing income. But have you considered how you’re going to achieve your goals?
Your budget is the amount of money, time and resources you have available to spend on certain projects. Whereas your forecast is where the business is predicted to go based on how you’ve performed in previous years.
By knowing your forecasts and your budgets it’s easy to stay on top of your finances over the course of the year. Remember, finances can change over the year based on how markets perform, but your budgets shouldn’t change once set.
Tip 3 - Keep your records organised
Do you know where your receipts and invoices are? Or, more importantly, could you find them if you were audited?
If you can’t identify how payments within your business are linked to invoices, then it’s impossible to keep track of who’s paid what and what’s left outstanding.
There are online accounting platforms, such as QuickFile, that help you keep track of everything that’s happened so you’re not left in the dark when it comes to your accounting.
Tip 4 - Check your balance sheets
Basically, your balance sheet is a financial statement providing a snapshot of the business, the amount owed, what it owns and how much has been invested. Because it’s a snapshot, it can’t show you trends over time.
These snapshots should always balance (hence the name balance sheet). Take the following example:
- The business takes out a £1,000 loan from the bank; the cash assets in the business therefore increase by £1,000, however, the liabilities will also increase by £1,000.
So why is it important? Investors can use them to get a sense of the business’s financial well-being, such as looking at the debt-to-equity ratio. Also, you can use them within the business to keep an eye on the financial health of the business.
Tip 5 - Regularly check-in
If you go through your accounts once a year, you have to spend a great deal of time ensuring everything is correct and balanced.
However, if you go through your accounts on a weekly basis, you have to spend far less time doing the work because you’ve already made sure everything to date is correct.
This can be helpful if you need to keep track of everything that’s going on and to make sure your business is heading in the right direction.