They say if you want the truth, follow the money. But that can be a challenge for companies that don’t follow accounting best practices.
It’s been found that over eight in 10 small businesses fail due to poor understanding or management of cash flow — with 45% of small businesses choosing not to employ an accountant or bookkeeper, and 25% recording their finances on paper instead of a computer.
If you’re looking for ways to make accounting easier and more efficient, here is some advice from three field experts.
1. Use and integrate the right software and systems
Paper ledgers and balance sheets are beyond passé. Make money matters simpler by purchasing, learning and consistently using reputable accounting software (e.g., QuickBooks, FreshBooks, FreeAgent), suggested Rishit Shah, an accountant and blogger for TallySchool.
“Next, connect this software with your billing system. This can automate billing tasks, create a streamlined data flow and save a hell of a lot of time,” said Shah. “Consequently, once a transaction occurs—be it sales or purchases—your accountant or accounting department will get the information instantly and perform accounting management more quickly. With this automation, they don’t have to ask for the data; it will be there.”
To take this strategy to the next level, eventually you should consider implementing an enterprise resource planning (ERP) system that can integrate multiple business processes, including accounting, order and inventory management, human resources and more.
“Once installed, all your departments should be trained on and connected to the ERP system, which they can use to automate the flow of data,” Shah added.
A small business owner must, above all else, develop a system of good internal controls.
Zachary Westwood, tax associate with Tull Forsberg & Olsen
2. Make accounting a joint effort among key staff
Gemma Roberts, accountant and owner of The Work Life Blend, believes it’s smart to involve key employees in your accounting functions.
“Individuals like your heads of marketing, sales, and supply may lack a financial background, but they should be using accounting information to help steer the business to success,” said Roberts. “Involving the right people can improve the data that goes into your accounting department and the information that comes out.”
First, educate each new employee on how your accounting process works and what they can do to improve it. For example, teach them how to code purchase invoices and expenses to the correct cost center, check that the amounts charged and goods delivered on purchase invoices are accurate and confirm that relevant taxes have been included. Ensure that staff are aware of important deadlines and cutoffs for payroll, expenses and payment runs, too.
Next, aim to improve accounting reports by having your staff ask marketing, sales and supply chain managers what financial information would help them effectively manage the business.
“For instance, ask how would they like to see the accounts analyzed and to what level of detail? Ask about key performance indicators and how your team could provide financial information that would support that,” said Roberts.
3. Maintain internal controls to keep what you make
Proper accounting practices do more than reconcile balance sheets and generate reports. With internal controlsin place, they can also decrease shrink, fraud, accidental loss and risk, ensure accountability, and safeguard the integrity of financial information.
“A small business owner must, above all else, develop a system of good internal controls,” Zachary Westwood, tax associate with Tull Forsberg & Olsen, said. “That includes safeguarding physical assets like cash, office supplies, and company vehicles along with managing custody, authorization and record-keeping of these assets.”
This is first accomplished by assigning different duties to different employees and not entrusting any one person with too many responsibilities—such as authorizing and recording transactions, keeping custody of assets and reconciling accounts. Procedures and policies related to banking and cash, accounts payable and purchases, accounts receivable and sales, financial reporting, and human resources and payroll should also be put in writing.
“Additionally, every transaction should be documented in detail, and employees should be made aware that these transactions are monitored and reviewed,” said Westwood. “Also, it is wise to perform background checks on employees, perform physical inventories as often as possible, and prepare a formal or informal risk assessment with the goal of identifying specific areas where fraud is likely to occur.”
CO— does not review or recommend products or services. For more information on choosing the best accounting software, visit our friends at business.com.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.