One of the most important factors to determine the growth and success of a business is its hold on the financial ground. Be it about meeting payment deadlines, managing the cash flow, keeping a track of invoicing or regulating the debt collection process, financial management has been an essential need for a profitable business. While the purpose of doing financial management can differ depending on your business type, size and need, the way it is done remain the same.
Regardless of the size of your business, there are some basic accounting principles and practices that apply which are known as generally accepted accounting principles (GAAP). These principles guide the accounting practices for businesses, including small businesses.
Some of the principles used in SME accounting are as follows:
- General Ledger – All small businesses have some daily accounting functions to perform. A record of all these daily accounting transactions are recorded in the general ledger. It’s one of the most important records for an SME whether it follows a traditional paper accounting process or a digital financial accounting process.
- Double-Entry Accounting – A double-entry accounting system is a more popular principle in practice in comparison to a single-entry accounting system. It’s a balanced system since it shows both the debit and credit columns on either side of the ledger.
- Money Transactions – Another one of the basic accounting practices is to show how money flows in an SME. In a business, money either comes in or goes out.
- Balance Sheet – An SME should also have a balance sheet which shows how the SME is doing financially at any given point of time. It provides an account of the current assets such as cash and fixed assets such as property and equipment. It comprises two sides which balance each other, thus giving it the name, balance sheet.
- Income Statement – Also known as a profit and loss statement, the income statement shows the income earned and expenses incurred by an SME at any given point in time. The difference between the income and expenses reveal the net profit of the SME. The way to calculate the net profit is by subtracting the fixed operating expenses from the gross margin. The gross margin can be obtained by subtracting the cost of sales from the actual sales. The fixed expenses include costs such as salaries, rent, insurance, and advertising expenses.
There are several company accounts and auditing practices that guide the financial processes and systems. Here are some best accounting practices for SMEs:
Here’s a quick overview that will help you make the most out of your business finances:
1. Feasible financial targets
Understand your potential before you decide your goals. Don’t rush to set financial goals for the enterprise without considering your current performance, the pace of growth, available resources, technology and time. If the targets are feasible, it’s easier to keep frustration and pressure off the table and ensure steady growth. It’s better for your business to be known for small achievements than for big losses.
2. Wise use of financial resources
Always bear in mind that businesses, especially in their initial stages, can go through unexpected downturns and the most important way you need to be prepared for this is to be ready financially. So even if you’re making huge profits presently or have a lot of money to spare, don’t engage your funds in unimportant heads. Spend smartly, invest wisely and stockpile enough money as an emergency business fund. That’s how you can prepare your business to stand against all odds.
3. A dependable accounting programme
Implementing a good accounting software programme like Giddh can benefit you in indispensable ways. With reliable accounting software, you can manage your business inventory smartly, maintain complicated records easily, get inferences out of huge data quickly, analyse how well your investments are paying you back and collaborate with accountants in one go. Such software lets you do more work in less time, reduce inaccuracies and hence minimize any risk of loss. If you want to improve your profit margins, you should implement this right away.
4. Well-trained accounting staff
If you are implementing better technologies, make sure you also have a smart staff to make the best use of those technologies. Train your employees. Make sure they know all the features and functions of the chosen cloud accounting software. You definitely need the people working on your critical business numbers to be resourceful, wise and vigilant. No business ever turned great without a good team at its back.
5. Regular business audits
By doing regular business audits is how you get to know if your strategies are working as expected or not. That’s how you know what the next move should be. That’s how you figure out whether you need to expand the team, work on marketing techniques, consider an advanced technology, redefine operational procedure, do budget cuts or work on some other department of the business. Doing regular audits will enable you to know what are your business’s needs, potentials, threats and opportunities. Once you know that, you can take measures to improve the results in future and grow your business better.
Remember that a business with a huge infrastructure and large team can fail because of poor financial management whereas a business with small infrastructure and a small team can succeed if its financial game is strong. For more details on accounting practices and financial strategies, feel free to talk to us.