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guidelines for small business accounting

Basic Guide to Small Business Accounting

Small-business owners makes decisions every day that impact the economics of the venture. Having proper accounting procedures in place makes it easy to track the money as it comes and goes and to have an up-to-date view of the company’s financial health.

When it’s about managing your business finances it’s key to create a plan with a budget, record your transactions correctly, review your results regularly and always keep good records. Your comfort level with the three basic financial reports that evaluate your fiscal health is also essential: the balance sheet, income statement and cash flow statement.

The following checklist lays out a recommended timeline to take care of the accounting functions that will keep you attuned to the state of your business and streamline your tax preparation. Read through for in-depth coverage of your required tasks, or skip to the end to see a handy infographic to use as a visual checklist.

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1. Check Cash Position
Start your day by checking how much cash you have on hand. Since cash is the fuel for your business, knowing how much you expect to receive and how much you expect to pay during the upcoming week/month is important.

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2. Record Transactions
Record each transaction (billing customers, receiving cash from customers, paying vendors, etc.) in the proper account daily or weekly, depending on volume. Although recording transactions manually or in Excel sheets is acceptable, it is probably easier to use accounting software like QuickBooks. The benefits and control far outweigh the cost. You can also hire a professional to do the hard job for you. We are here to help you with that.

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3. Document and File Receipts
Keep copies of all invoices sent, all cash receipts (cash, check and credit card deposits) and all cash payments (cash, check, credit card statements, etc.).

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4. Review Unpaid Bills from Vendors
Every business should have an “unpaid vendors” folder. Keep a record of each of your vendors that includes billing dates, amounts due and payment due date. If vendors offer discounts for early payment, you may want to take advantage of that if you have the cash available.

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5. Pay Vendors, Sign Checks
Track your accounts payable and have funds earmarked to pay your suppliers on time to avoid any late fees and maintain favorable relationships with them. If you are able to extend payment dates to net 60 or net 90, all the better. Whether you make payments online or drop a check in the mail, keep copies of invoices sent and received.

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6. Prepare and Send Invoices
Be sure to include payment terms. Most invoices are due within 30 days, noted as “Net 30” at the bottom of your invoice. Without a due date, you will have more trouble forecasting revenue for the month. To make sure you get paid on time, always use an invoice template the contains the right details such as payment terms, itemized charges, and your payment address.

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7. Review Projected Cash Flow
Managing your cash flow is critical, especially in the first year of your business. Forecasting how much cash you will need in the coming weeks/months will help you reserve enough money to pay bills, including your employees and suppliers. Plus, you can make more informed business decisions about how to spend it.

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8. Balance Your Business Checkbook
Just as you reconcile your personal checking account, you need to know that your cash business transaction entries are accurate each month and that you are working with the correct cash position. Reconciling your cash makes it easier to discover and correct any errors or omissions—either by you or by the bank—in time to correct them.

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9. Review Past-Due (“Aged”) Receivables
Be sure to include an “aging” column to separate “open invoices” with the number of days a bill is past due. This gives you a quick view of outstanding customer payments. The beginning of the month is a good time to send out overdue reminder statements to customers, clients and anyone else who owes you money.

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At the end of your fiscal year, you will be looking at this account again to determine what receivables you will need to send to collections or write off for a deduction.

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10. Analyze Inventory Status
If you have inventory, set aside time to reorder products that sell quickly and identify others that are moving slowly and may have to be marked down or, ultimately, written off. By checking regularly (and comparing to prior months’ numbers), it’s easier to make adjustments so you are neither short nor overloaded.

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It's a Social Media and digital marketing consultant and owner and founder of LFStudio.com. He is also author and entrepreneur. He helps small businesses to grow, get clients and generate income.

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