Is your business earning profits? Do you have funds for expansion? One can’t find answers to such questions unless a proper accounting and finance system exists. Most organizations have an accounts department with a few bookkeepers and accountants, but is that enough? Perhaps, not.
As businesses operate in a highly saturated market, they have to stay on top of all money-related matters. Whether preparing cash flows or implementing internal controls, business owners have to up their accounting game. After all, maintaining records with the help of a bookkeeper is not enough. You have to make sense out of available financial data and make decisions that align with the company’s financial standing.
For starters, every company has to choose an accounting principle that aligns with their region. Similarly, they have to manage their outflows, opt for smart financing options, and keep internal controls up-to-date. A robust accounting department will ensure the business never falls into bankruptcy or liquidity crisis. However, if you’re not sure how to upscale accounting practices, look below. Here we are listing five ways how businesses boost their accounting game.
1. Pick an Accounting Method
When it comes to reporting income and expenditure, every business must pick an accounting method. Most companies follow International Financial Reporting Standards (IFRS), whereas others stick to Generally Accepted Accounting Principles (GAAP). It provides a consistent accounting method for tax purposes, ensuring timely filing and returns. In addition to accounting standards, you have to choose between accrual and cash basis accounting.
An accrual-basis will allow you to sell on credit. In contrast, a cash basis records revenue when payment hits the bank account. If this sounds complicated, you must learn the basics. If you have an undergrad degree, we’d suggest you explore the entire Accounting Masters Degree Online Journey and see what it entails. The program covers everything related to accounting methods, principles, and standards. It will equip you with the latest knowledge and expertise to improve accounting practices.
2. Improve Credit Management
Most companies keep taking orders without checking customers’ credit histories. After all, the salespeople get paid to sell goods and services, not for collecting bills. However, delays in payments can cause the company to lose money and run into a liquidity crisis. So, how to handle this problem? Perhaps, you can switch to a software program that makes credit checks during order entry. A sales rep can’t dig into every customer’s credit history, but we can always automate this process.
The software will run credit checks when the customer writes their name and contact details. It will unfold if the customer has unpaid bills or has defaulted on any payments recently. The order would get accepted in such instances, but the software will put it on hold. Maybe, you can ask the customer to make an upfront payment or get collateral against the bill. These measures will improve credit management while reducing the likelihood of losses.
3. Maintain Accurate Business Records
Truthfully, recordkeeping is one of the core responsibilities of every bookkeeper. They have to keep track of how much money is coming in and going out of the business. However, all this documentation is super time-consuming. So, why not automate the recordkeeping process? Accounting software solutions can store all financial records digitally. For this purpose, you’ll have to connect the application with your business bank account to record all transactions.
Moreover, you can create categories such as expenses, receipts, etc., within the software. It will come in handy when claiming expenses as tax deductions. Most of the records businesses have to maintain are listed in IRS publications. Still, we have mentioned a few essential ones below.
- Gross Receipts: All the income that your business receives, whether from sales or investments, should come under gross receipts.
- Fixed Assets: You have to record these assets and insert formulas to calculate depreciation. In addition, the asset documents will include invoices, canceled checks, payee amounts, and real estate closing statements.
- Expenses: These are the costs that keep the business afloat. Hence, ensure you have records of all the money that went out of the company.
- Receivables: Sometimes, the business earns through commission and discounts. Therefore, you must ensure these inflows are recorded by creating a separate category.
4. Generate Financial Projections
Any clue where your business stands in the next three years? Usually, small business owners have a short-term perspective, refraining from looking further ahead. Prepare financial projections if you don’t want short-term gains to blindside you. They help businesses anticipate expenses and income. In addition, forecasts help leaders estimate cash flow and determine when to adjust the pricing.
If the demand is likely to increase, projections will help the expansion plan. It will determine whether the company will have enough cash available, or you have to seek external financing. Besides this, forecasts also provide critical financial information to external stakeholders. For instance, if your business were to acquire a loan, banks will dig into financial projections to see where your company stands. If the projections show high profits and positive cash flow, obtaining a loan will become effortless.
5. Upgrade Internal Controls
Once accounting procedures and policies are in place, ensure everything reconciles and start making reports. For that, you have to put a few internal controls in place. It will ensure all the records are accurate and reliable, eliminating the chances of fraud and mistakes. In addition, internal controls ensure accountability and safeguard the company’s integrity.
Now, the question is how to implement effective internal controls? Firstly, you must safeguard physical assets such as office supplies, company vehicles, and cash. Besides insurance, you have to keep them secure and restrict access. Second, you shouldn’t entrust one person with multiple responsibilities. That means one person should not record transactions, manage assets, and reconcile accounts. Lastly, put all the policies and procedures related to payables receivables in writing. It will ensure everyone is on the same page.
Undeniably, financial management is not a cakewalk. Alongside high-tech systems, you need highly qualified staff and professionals to manage money-related matters. After all, a company’s financial health is directly linked to its success. Therefore, make sure you have stringent policies in place to avoid fraud. Likewise, automate the bookkeeping process to increase accuracy, make credit checks, and draft financial projections. These few strategies will allow you to capitalize on opportunities while ensuring the business isn’t on the path to bankruptcy.