How to Keep Accounting Records for Small Business

0

If you own a business or want to open one in the near future, you might be wondering about finding out the various aspects related to keeping your account records and books in an organized manner. In this guide, we’ll tell you various methods using which you can keep your account records organized.

Record keeping is one of the most essential and important responsibilities as a small business owner. An efficient record-keeping system might actually be responsible for your business’ success.

Record keeping has its own variations- from simple manila folder filing systems to complex on-line electronic systems. But as we grow towards modern age and we’re incorporating technology in literally every aspect of your life, it is important for you to do this with account keeping as well.


“This post may contain affiliate links & we will be compensated if you make a purchase after clicking on our links” [Read More Here]


Amazon Prime

Reasons Why You Should Keep a Good Accounting Record

Not only do you legally require to keep your records in an organized manner, but doing this will also help you monitor the financial performance of your business as well as comply with your tax obligations.

Let’s explore every reason in detail:

1. Detailed Tracking of Expenses and other Information

Accounting
Image Source: https://pixabay.com/photos/calculator-calculation-insurance-385506/

Even if you own a small business, you have to track a significant amount of information, such as customers, sales, and inventory. Without tracking, you might lose sight of important business details, leading to problems with serving your customers. Your business may not be able to meet buyer demands If you have no clue about the details of your customers, such as who your customers are and what your customers like, etc.

You could risk your customers, perhaps forever, if you don’t know about them. You can improvise by knowing about your customers, their orders and your inventory. All of this is possible only with the help of a proper record-keeping system.

2. Planning and Future Prospects

Business Plan
Image Source: https://pixabay.com/photos/hand-business-plan-business-3190204/

Keeping your records in an organized manner makes your business future proof. It makes it easier for you to plan for the next quarter or year, after tracking everything from the past quarter or year. Suppose you own a cloth store, it is important for you to track all the year round as trends change with seasonal cycles.

3. Compliance with Legal Rules and Regulations

Court Law and Hammer
Image Source: https://pixabay.com/photos/hammer-books-law-court-lawyer-620011/

When you first register a business, you are required to hold many permits and licenses. You also need to keep your accounting record for tax purposes such as –

  • Income and sales (which includes sales invoices, receipts, cash register tapes, and cash sales)
  • Purchase and expense (which includes tax invoices, checkbook records, and receipts)
  • Year-end records (which includes a list of debtors and creditors, stocktake sheets and depreciation schedules)
  • Bank records (which includes bank statements and loan records)
  • Goods and Services (GST, which includes tax invoices from suppliers.)

4. Retaining Previous Records

Pile of Files
Image Source: https://pixabay.com/photos/files-paper-office-paperwork-stack-1614223/

Let’s say that you have kept your books straight for around 5-6 years and you want to retain all of your accounting records during this timeframe. If you haven’t kept your records properly, you will have a hard time retaining your old records. This is why it is essential for your business to manage the business and personal records over time.

A poor system of retention of accounts will prevent managers from retrieving information during the time of need. Therefore, it is essential for your business to keep a well-maintained record keeping retention system as well.

Payoneer

Record-Keeping Tools for your Business

Now that you know the importance of record-keeping, and also its retention, let’s see what are the tools you can use to do so.

1. Paper-Based

For early businesses and startups, sometimes the simplest is the best. Here are some of the paper-based tools for record-keeping.

File Folders – A file folder system makes it easy for small businesses to track their accounting. You can hold different files together in a file folder and use adhesive labels to know what’s inside.

Hanging Folders – Hanging Folders are used to group many file folders together. You can use hanging folders to group files that come under a single heading, like “Customer Data.”

2. Computer Systems

Not many businesses like the effort and storage required for paper-based methods of bookkeeping. This is why computer systems are becoming the norm. Computer systems need minimal physical storage and ensure that your records can be retained and transmitted easily. Make sure you have a backup of all your data in a separate computer system in a remote location.

Business Software Solutions

Being a business owner,  you’ll need various software solutions to manage your business operations. You’ll need software solutions for the following things –

1. Accounting and Invoicing

Every business has its accounting and invoicing system. But when you streamline this need with a software solution, it will significantly improve your business. It also substantially reduces human error and makes sure all your data is available when needed.

2. Purchase and Sales Management

Managing purchase and sales means the procurement of proper equipment, materials, and supplies of the right quantities, at the right prices at the right time.

A suitable software solution makes it easier to handle things like ordering material upon requisition by the users, checking receipt of the material and maintaining files and records of orders and price movements.

3. Order Processing

Order processing is basically the process of placing orders with suppliers, getting a quotation, GRN/Delivery challan, and also the processing of invoices, payments, and receipts. Getting a software solution to help with all these tasks makes it easier for companies to avoid confusion or errors, and plan other aspects accordingly.

4. Banking

To cater to the banking needs of your organization, you can use software solutions for digitizing all your processes. Banking may include things like cheque printing, BRS and e-payments and all of this can be done via software. A suitable software solution also plays a vital role in channelizing banking entries into books of accounts.

Best Selling Keyboards

5. Payroll

Streamlining the entire process of distributing payroll to your employees via a viable software solution makes it easier for the entire organization. Managing payroll includes management of employee records, payouts, and related statutes. Processing all of this is very time consuming and using a software solution will save a lot of time.

6. GST and Other Statutory Compliance

A lot of businesses had a hard time complying with GST during the initial rollout phase. Use a software solution that makes it easy for your organization to comply with GST and its ever-changing scenario.

7. Inventory

If your business owns an inventory, you can use a software solution that tracks it precisely. You can also study your inventory capacity over time and evaluate future needs.

While there are plenty of things you need to manage, using multiple software solutions for each of these will put your business at a disadvantage. One being the cost associated with multiple software solutions and more importantly, you will not be in a position to get a complete view of the business since the business information is scattered.

To overcome this challenge, many businesses are using integrated accounting software (ERP) which makes it possible to manage all the functions of a business with a single software solution.

Integrated accounting softwares are so flexible that you can incrementally add different functions. You may not need all the functions as you start but as your organization grows, you may need different functions to manage a business efficiently.

8. Business Software Options for your Business

The most commonly used business software options are email, spreadsheets, and accounting software.

Emails – If you are reading this, you are probably familiar with email. Businesses can communicate with clients, employees, suppliers, vendors, and independent contractors using emails and keep an account of their requirements.

Spreadsheets – Spreadsheets are one of the most widely used software solutions for keeping accounting records. A spreadsheet is the computer version of paper accounting worksheets. It uses multiple 2D cells consisting of rows and columns. Each cell contains some text, tables or formulae. But a simple keystroke mistake or miscalculation can prove to be catastrophic for an organization. It is tedious and requires more effort & time. This is why the next option is used more widely.

Accounting Software – Accounting Softwares are one of the most important elements of a successful business. They keep track of business financial records such as sales, expenses, inventory, and assets. With the help of accounting software, the whole manual process becomes automated, thus reducing both human intervention and error.

Unlike spreadsheets, accounting software also makes it possible for the auto-generation of reports. Getting usable insights from these reports will help you to take accurate and confident decisions which is the key to the growth of your organization.

You can find various types of accounting software according to your business needs. Accounting software also helps to organize your financials. Also, the retrieval of information is also possible easily with accounting software.

Tracking your Own Business

While you are busy knowing about the likes and needs of your customers, it is essential to track your own business’ needs as well. It’s a crucial step that helps you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, etc. You can easily track the business expenditures using accounting software.

Here are some of the things you should do as a small business owner –

1. Plan your Budget

A business, especially a new one, involves a lot of spending. Spending can include many things like rentals, salary, marketing, electricity, purchases, etc. You need to create a budget and plan your expenses and amend them. There also might be unexpected expenses so you need to make sure you also have a budget for that.

2. Get Paid on Time

As happy as it is for you to get your first client, it is equally important to get paid. Adopting an easy payment policy will help your clients know when you are expecting payment. This will further improve relationships and open future prospects.

3. Maintain Separate Accounts for Home and Work

Small businesses often tend to mix up things with home and work. It is important for you not to do this mistake and maintain separate records for your business. This will make it easier for your accounts record keeping as well.

Conclusion

Starting a business isn’t a piece of cake for everyone. If you did, then you have already overcome so many hurdles. But to keep everything smooth, you need to track a lot of information. Regardless of what tools you use for account keeping, you need to make sure that the business software you use is ideal for your business.

LEAVE A REPLY

Please enter your comment!
Please enter your name here
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.