Accounting statements are vital tools for businesses, providing a clear picture of their financial health. The three primary accounting statements are the income statement, balance sheet, and cash flow statement.
The income statement is used to calculate a business’s net profit or loss. It starts with the cost of sales and then deducts expenses to determine the net profit earned. The cash flow statement, on the other hand, measures a company’s ability to pay off its debts and expenses by determining the net flows. Finally, the balance sheet provides an overview of a business’s assets and liabilities, along with the owner’s equity during a specific period.
Combining these three statements offers a comprehensive overview of the business’s financial standing, which is crucial for owners to make informed decisions and plan for future growth. It’s essential to keep these statements up-to-date by ensuring that bookkeepers and accountants record all transactions promptly and accurately.
Overall, accounting statements play an integral role in running a successful business. By utilizing them effectively, owners can make informed decisions, adjust their strategies, and ultimately achieve their goals with confidence.
To do so, companies need to invest in the correct tools and emphasize the timely recording of crucial data to avoid potential losses and aid in analyzing business trends and making essential decisions.
However, according to statistics, most SMEs don’t implement regular accounting practices unless something goes wrong. They only resort to proper bookkeeping when taxation is due or if a cash flow imbalance costs them a client or a project. This last-minute crisis management often breaks budget caps and raises the risk of errors in accounting statements, which can eventually cost the business owners a lot.
However, suppose you implement proper accounting strategies beforehand and focus on the regular record-keeping of all your transactions. In that case, your business might never go into debt, as these statements will quickly warn you if something is going wrong with your business.
Here are some effective accounting strategies that small businesses should implement to stay afloat and turn the tides in their favor.
- Establish a proper accounting/bookkeeping department: Don’t misunderstand. We don’t mean to force you into hiring multiple people for your SME. A single person can even do the job well. However, you must hire a qualified and focused bookkeeper who is familiar with essential accounting software. While bookkeepers and accountants primarily differ in the JDs and accountants are supposed to be more competent and learn to do financial analysis, for an SME, a bookkeeper can do the job simply by recording all transactions on time.
- Please keep your personal and business accounts separate. One of the biggest mistakes small business owners make is merging their personal and business accounts. Companies may cause a large cash flow imbalance and impact taxation and account management. Detach your assets and only deposit a fixed amount to your account as your salary to avoid confusion in your business finances. This also helps to keep your bookkeeping statements straight and strictly business-driven.
- Don’t ignore petty cash: Besides recording the regular banking transactions, ensure that your accountant records all the tiny cash transactions. While running a business, often at times, a lot of money leaks daily in a small quantity, sometimes to fetch specific stationery or to make last-minute payments. Accountants fail to record such statements, leading to a massive imbalance in the cash flow and revenue statement.
- Record all other transactions: Keep track of all the transactions. Record invoices and receipts to match your transactions at any time and conduct a proper internal audit of your financial statements. These records are crucial to maintaining your business’s financial information.
- Use proper accounting software: SME owners usually refrain from investing in appropriate software at the start of the business. This can sometimes lead to significant discrepancies in the accounting statements. It is essential to invest in proper business accounting software. Many affordable options are available in the market, including cloud-based and server-based options. Choose one that best suits the needs of your business to avoid discrepancies in your accounting statements.
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