Why do most businesses fail?
Poor Financial Management
The U.S. Small Business Administration reveals that about half of all new small businesses launched in the U.S. will fail within the first five years.
The key to keeping your business afloat might just be getting a better handle on your bookkeeping. Accurate bookkeeping can help you maintain your long-term goals, smooth out the seasonal ups and downs of your cash flow and even improve your profits. Understanding basic business bookkeeping can help you succeed when other businesses might fail.
Here are 5 Bookkeeping Tips that can help improve your profits and cash flow:
- Use the right accounting method
- Watch your Invoices
- Know the Difference Between Profits and Cash Flow
- Track Expenses
- Perform Basic Accounts Reconciliation
Which accounting method do you use? There are two main business accounting methods: cash and accrual.
Cash accounting is the simpler method because it’s based on the actual flow of cash in and out of a business. The cash method is used primarily by sole proprietors and businesses with no inventory. Cash basis tax payers include income when it is received, and claim deductions when expenses are paid.
Accrual accounting records income and expenses as they occur and claim deductions when expenses are incurred. As companies grow and become more complex, most small businesses switch to accrual accounting, because this makes it easier to accurately match revenue to expenses.
Watch your invoices – late or unpaid bills can hurt your cash flow. Just because you have sent out an invoice doesn’t mean you are done with the billing process. You must follow-up on invoices that haven’t been paid especially if they are 30, 60 and 90 days late. If your customers aren’t paying, you are basically providing them with an interest free loan and this won’t bode well for your cash flow.
Just because you have a positive cash flow now doesn’t mean you will be profitable long term. Cash flow is the movement of money into or out of your business. You may pay for services up front, but still be awaiting payment from your customers which in the long run could be harmful to your profits. That is why we recommend you watch your invoices and make sure they are paid in a timely manner.
Tracking your business expenses is important. Keeping your business and personal expenses separate is even more important. Saving all receipts for business expenses can be helpful for several reasons for one if you are audited you have documentation and secondly you could possibly miss out on tax rightoff’s.
Just like you reconcile your personal finances you must do the same for your business finances. Reconciling your business’s books with your business bank statement every month is one of your most fundamental accounting duties. Even though account reconciliation is relatively simple, busy small business owners tend to overlook it. It is important to conduct account reconciliation monthly. Don’t let yourself get behind – timely reconciliations can help you avoid costly accounting errors that may result in greater financial issues.
Knowing the numbers in your business can help tremendously. Gain access to financial statements on a regular basis – balance sheet, income statement, and profit and loss statement.
If you are looking for qualified Bookkeeping Services click on the link provided.
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