The reaction of weak management to weak operations is often weak accounting. ~ Warren Buffett
Accounting speaks to the owner(s) regarding the performance and status of their business. Performance tells if the business is profiting or incurring losses, and how much. While status tells how much asset the company has, how small or large its debts and how much is left to the owners.
Understanding the whole concept of accounting can be tough for ordinary small business owners who both lacks the technical knowledge in accounting and the time to study it. As such, I’m writing this article to share with you the top 6 key accounts you need to periodically look at or monitor in your small business to help its sustainability and longevity.
Cash
As they say, cash is king. It’s hard to run a business without cash. And it’s hard to grow an already profiting business if you don’t know where cash comes from (cash inflows) and where it goes (cash outflows).
To ensure proper accounting of cash, these are some of the ways you can manage it properly.
- Maintain a bank account exclusive for the business. Do not mix personal and business cash.
- Create vouching system to track disbursements or cash that’s going out.
- Ensure proper billing and collection system that monitors what comes in or the receipts.
- Perform bank reconciliation monthly
Receivable
Not all profit are cash, the same way as not all sales are cash. One of the common reasons why a business is profiting and has high sales, yet is having cash problem, high amount of receivable can be the culprit.
Receivables are sales not yet collected. In short, you already sold the service and/or goods to your costumer, and yet, you are still not paid.
To ensure proper accounting of receivable, these are some of the ways you can manage it properly.
- Have a proper billing and collection in place.
- Register and issue proper invoice and/or receipts.
- Properly record all invoice and/or receipts issued.
- Have an ageing of receivable schedule which details all list of receivables that are not yet due and those that are already past due date.
Inventory
An account that can be often overlooked is inventory. But improper management of inventory can break any business.
Inventory are goods you have bought for sale, but at the end of the period, it’s still not sold. It’s still in your warehouse waiting to be bought by your costumer.
When inventory is not managed properly, it can result to over or undersupply. As well as it can increase costs of spoilage, losses from theft, etc.
To ensure proper accounting of inventory, these are some of the ways you can manage it properly:
- Set-up an inventory list of all the items for sale
- Perform inventory count of what’s on hand at a given period (at least monthly)
- Invest on an appropriate inventory system for your business
- Conduct analysis of your fast-moving and slow-moving inventories to avoid under/over stocking.
Payable
Many might think that monitoring payable is a waste of time since it’s an outflow. But if you do monitor payable, you save yourself from the risk of having cash problem or what they call overdraft or worse, bankruptcy.
Overdraft means having more cash outflow (disbursement) than your bank account cash balance. This is the cause of bouncing check because the company keeps on spending and issuing checks without really knowing how much their cash is. Bankruptcy, on the other hand, is a legal process you’ll seek to relieve yourself from all your debts because you can no longer pay it in any means but filing it can affect your credit standing.
Another problem if you don’t properly monitor payable you tend to miss the due dates, and as such, you’re incurring unnecessary penalties and losing your vendor’s trust.
To ensure proper accounting of payables, these are some of the ways you can manage it properly:
- List down all your outflows and/or expenses from vendors and creditors which you expect to have monthly or regular payments; such as lessor for rent, utilities, cost of sales, salaries, etc.
- Create list of all your payables, then schedule and reminder it. Having a reminder will avoid the tendency of forgetting and overlooking your dues. Plus it gives you control on when to pay each.
- Have a system in place to properly track your payables such as filing all your payables in one place for ease of access.
Taxes
Last but not the least, one of the important key accounts you need to look at in your small business is your government dues such as taxes. There are several reasons why it’s important to monitor, and one of it is to avoid having problems with government institution especially the BIR or Bureau of Internal Revenue.
When you include taxes in your monthly checking it becomes part of your system to pay taxes on time. And if you do, it reduces the risk of unwanted stress of tax audit. Also, it can give you ample to time to prepare and budget.
To ensure proper accounting of taxes, these are some of the ways you can manage it properly:
- Do proper withholding to applicable expenses or payments
- Collect and safekeep creditable taxes your client/customers give you
- Have proper tracking and do not spend the VAT you collect from your costumers
- Properly account your income and expenses
- Prepare and pay tax ahead of deadline to save you time from queuing and possible penalties for late filing.
I hope this article has been helpful for your to properly start managing the accounting and finance of your business.
For a final note:
Accounting is not just a reportorial requirement to BIR, rather, if done right, accounting can be your partner to growth in your business.
