How to Maintain Small Business Accounting ?
6 Steps to Maintain Small Business Accounting
Starting a new venture, eh? Hearty congratulations to you. A new venture needs time to settle in the market. It will take time to strive and grow. At first, it is always recommended to go easily and slow which many people do just the opposite of. Get a hang of the present trends and ways in which the market works. Study the market and only then come to any deductions. The better you’ll understand the market, the quickly you’ll strive.
Running a business in this cutthroat competition is not easy. You need to come up with a variety of new ideas and methods if you want to make a name. Steady yourself and buckle up your shoes because it is no less than a roller coaster ride. In order to grow into a brand you need to do what others lack and that is proper accounting. Earning in crores but not keeping a track of inflow or outflow is foolishness. Accounting is a method, using which you can keep a check on all your expenditures and income, irrespective of the size and quantity. Maintaining an account is easy only if you work in a systematic manner. You can follow these simple steps and maintain small business accounting.
Understand your business
By understanding it doesn’t simply mean understanding the way in which you want to work. It means getting to know the whole market, the trends it follows, the weaknesses, the strengths, the procedure your competitors and other fellow firms adopt etc. The best way to choose your accounting system is by thoroughly understanding the nature of your business. For instance, if you are planning to open a sugar factory, you have got to keep in mind that it is a seasonal industry and the factory will be operational only for 6 months, that is, one season, during a year. The manpower you’ll hire, the depreciation you’ll charge on assets, the capacity, the wastage, problems in procuring raw material, payments etc. needs to be analyzed and assessed prior to stepping into the market. You have to have a thorough understanding of the venture.
Choosing the accounting method
There are three methods of accounting, viz. cash, accrual and hybrid. The cash basis of accounting is the traditional and oldest method of accounting, wherein transactions are recorded when they actually happen. Every transaction or event is recorded only when cash is actually received or paid. The other is Accrual concept, which is the most widely used method. It records transactions or events when they take place and not when cash is physically given or taken. You can choose any method of accounting according to your business nature. For instance, in case of college, it is better to opt for cash concept wherein in case of a public or private limited company, accrual would be better.
Then comes the question of the year as to where to begin. Our yearly calendar begins in January but not the financial year. It begins in April and ends in March the following year. It is advisable to choose the financial year because, the income tax and other revenue departments follow this calendar. You are free to choose to keep any calendar cycle starting from any month but it is preferable to opt for April to March.
Hire an expert
Accounting is a full time job. It requires a systematic approach. Since, it deals with company resources and financial information, it is advisable to hire an expert accountant and book- keeper. You can also hire a chartered accountant to take care of all your accounting work including tax returns and assessments, payment of government dues, representation in courts etc. A professional accountant will give you all the information regarding your finances and financial condition of your company. He’ll advise you from time to time and keep your work up to date. He will also give you technical information on tax saving, reducing expenditures etc. A professional accountant knows everything about accounts and its maintenance and will be an asset for your venture.
Manual accounting is a tedious task because first you’ll need to write journal entries, and then post them in ledgers to calculate exact balances, which can be wrong too. Wherein if you’ll use software, like Quickbooks, Tally etc. you won’t need to do much work. All you’ll have to do is add entries and all the subsequent reports and balances will be generated automatically. Accounting softwares are designed to take off your workload and give you desired results. The accounting softwares are complete ERPs, that is, Enterprise Resource Planning. You can also perform other tasks like, taxation, payroll management, calculation of provident fund, bonus, statutory dues, salary etc. You can either install general accounting softwares or get one customized to suit your needs.
When it comes to money and accounts, you need to have thorough and detailed information. You cannot leave it in the hands of others. Hire employees or professionals to do your work but keep a keen eye on their system. Do surprise checks, ask for clarifications, etc. because lack of supervision can lead to fraud and embezzlement. Resources are not for wastage. Earning profit and draining it like this is not what entrepreneurs do. Design and implement a sound internal control system that will keep a check at every turn.
The best way through which small and medium enterprises can thrive is by optimum utilization of resources. Accounting is not only about filing a return on the basis of generated figures. It is about analyzing and improving your business sense. The figures or balances that are generated need proper analysis. For example, cost cutting, getting better returns on investment and expenditure, better penetration into the market etc. The more you’ll analyze the better returns you’ll earn.
Follow these steps and you’ll be able to maintain your accounts properly. Do not go about spending too much money on trial and error. Keep a keen eye and you will definitely become a successful entrepreneur.
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