In a case study by Harvard University, research showed that 28% of small businesses fail due to problems with the financial structure of their company. With the many variables that go into managing a company’s finances, it’s easy to understand how this statistic holds up.
In day-to-day operations, small companies must manage a myriad of expenses: personal, business, payroll, and other labor-related expenses. Tracking them can lead to making small, but frequent, accounting mistakes that can result in inaccurate monitoring of financial health.
More often than not, this leads to a financial break-down. To avoid poor accounting practices, companies must proactively establish an accounting system for managing personal and business expenses by using accurate bookkeeping practices. Here are some quick and easy steps to start tracking your business’ finances.
1. Establish a Bookkeeping System
Start tracking your business expenses by establishing a reliable bookkeeping system. Bookkeeping is the daily process of recording and categorizing transactions, and reconciling bank statements. Keeping accurate accounting records help your business price products accurately, track income, manage tax filings, and understand cash flow. Starting proactive bookkeeping practices will also show lenders and investors that you are responsible, and increase your eligibility to receive loans, if needed.
Kashoo’s accounting software can help you to track sales, expenses, bank balances, and accounts payable and receivable as well as monitor merchant account information.
Related: What Are Good Bookkeeping Practices
2. Create a Convenient Payroll System
When managing your company’s finances, it is important not to overlook the biggest expense for many companies: payroll. This includes tracking the cost of wages, employee benefits, overtime, and other labor associated costs. Creating a manageable and efficient payroll system is the easiest way to start tracking perks, benefits, and other labor expenses. Having done so, you may find you have more money to incentivize your employees, or conversely, that you have outspend your budget.
If your company plans to set up its own payroll system, you can look at Kashoo’s easy-to-use Payroll Integrations. Kashoo has partnered with Paychex and SurePayroll in the USA, and PaymentEvolution in Canada, to make managing your payroll efficient and easy-to-use.
Related: A Formula for Success With Payroll
3. Keep an Organized Chart of Accounts
Apart from managing large overhead expenses, your business needs to proactively track other investments in an organized manner. It is important to create an organized chart of accounts, when tracking personal investment in your business.
Separate expenses by creating a Contributed Capital account and an Owner’s Draw account. When you put personal funds into your business (e.g. a deposit into your business bank account to cover a business expense) that money would come from the Contributed Capital account. Similarly, when you need to personally withdraw money from the business, you would do so from the Owner’s Draw account. This helps your business stay balanced between assets and liabilities. These transactions can offset personal income you have received from the company, potentially lowering your personal tax obligation.
Keeping an accurate chart of accounts will help you see a complete overview of where your company’s finances have moved in the past and may move in the future.
4. Know Your Bottom Line
Once you establish a bookkeeping system that works for your company, the key to successfully tracking the money you invest (and withdraw) in your business is accuracy. When you are accurate, you position you and your business for success while capturing all of the appropriate tax write-offs. Accuracy is most often lost when it comes to expenses, such as when the business owner makes a business purchase with personal funds and fails to record it. Small expenses here and there can add up, and create an illusory view of your business’ finances, which ends up hurting your company in the long run.
Kashoo provides great tools to instantly record business expenses with a snapshot of a receipt, or a quick entry on your mobile device at the time of purchase.
Related: Expenses – Overview
By establishing a working bookkeeping system with a meaningful chart of accounts and a convenient payroll system, you will empower yourself to understand your bottom line and run a successful business.