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Small Business Accounting 101: Put Your Start-up on the Path to Success with These Six Steps

by
Julie Farless
on
6/11/2017
Small Business Accounting 101: Put Your Start-up on the Path to Success with These Six Steps

For years, dreaming about becoming an entrepreneur pervaded your daily thoughts. Recently, you finally turned your lifelong ambition into a reality when you placed an open for business sign in the window of the building your start-up is housed in. While you love going to work every day, you’ve experienced some of the common challenges new small business owners face. For instance, your cash flow is sub-par. If you can relate to this scenario, put your start-up on the path to success by adhering to the following six steps.

#1 Track Your Expenses 

Besides helping you monitor the growth of your company and build credible, financial statements, tracking your expenses can help you maximize deductions on your income tax returns. So, establishing a reliable system for organizing receipts and other pertinent information is essential. When tracking deductible expenses, pay particular attention to:

  • Business travel
  • Meals
  • Vehicle related expenses
  • Home office receipts

The IRS is vigilant about people claiming personal travel expenses as business ones. So, to deduct qualified, business travel costs, keeping a paper trail is crucial. Do you regularly conduct business affairs in restaurants or cafes? On the backs of your receipts, write down the names of the people who attended the meal in addition its purpose. Whenever you utilize your vehicle for business reasons, always record the date, location, and rationale of your voyage. Nowadays, more and more small businesses are being run in people’s homes. If you own a home-based business, you’ll need to calculate what percentage of your house is being utilized for business purposes. Apply this percentage to home related expenses such as electricity and pest control services. 

#2 Utilize a Real-time, Cloud Accounting System

Whether you operate your business at a brick and mortar establishment or at home, you might desire around-the-clock access to your company’s financial information. With a simple internet connection, you can utilize a real-time, cloud accounting system anywhere at any time of the day or night. Instead of spending most of your working hours in the office, you can travel more, recruit new clients, and take care of other pressing, business matters.

#3 Get Paid Faster

Cash flow problems often plaque owners of start-ups. If you’re strapped for cash, look for ways to get paid faster. For instance, immediately invoicing customers for products or services is smart. You might also wish to reconsider the credit terms you provide to customers. If they have a full 60 days to pay for items, you may want to lower it to 30 days or less. Business owners struggling to collect money from customers can also benefit from factoring their account receivables.

#4 Establish and Track Key Performance Indicators (KPIs)

KPIs refer to the values utilized to gauge a company’s success in achieving its goals. Tracking important KPIs can help you make meaningful decisions about your business’s growth and development. Inventory turnover is an excellent KPI to monitor. It assesses the number of times inventory is sold or used over a specific period of time. This number shows you how quickly your business is moving merchandise. To calculate inventory turnover, add up the cost of sold merchandise. Divide the amount by the value of the inventory on hand at the end of the period. Other KPIs worth tracking include revenue growth rate, gross profit margin as a percentage of sales, and accounts payable turnover. 

#5 Outsource

Do you often feel you need more than 24 hours in a day to complete all of your small business related tasks? If you never have enough time to get everything on your daily to-do list finished, consider outsourcing ancillary tasks such as accounting, administrative, or marketing ones. While professionals handle these activities, you’ll have more time to work on expanding your business.

#6 Establish Top-notch, Internal Controls

Establishing top-notch, internal controls is crucial. These safeguards can help prevent financial crippling fraud from occurring at your place of business. For instance, forcing employees to take vacations annually is a great idea. Internal controls can also improve efficiency and productivity by highlighting processes that aren’t being performed correctly.

Launching a successful start-up can be one of the most stressful and challenging events in an entrepreneur’s life. Thankfully, armed with the aforementioned tips, you can increase your odds of long-term, business viability.

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Julie Farless

Julie Farless

Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services, but we specialize in tax preparation. We work with you to ensure that your personal or business processes are conducted in a manner that ensures ongoing integrity in your financial transactions. We are available to answer your questions and help with your ongoing tax planning and changing business needs.

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