Accounting and bookkeeping are two essential processes in businesses. They help one budget accurately, prepare for taxes, maintain organized records, and track income and expenditure. Bookkeeping and accounting also form the basis for preparing the final financial statements of a company. Accounting and bookkeeping are the backbones of the growth of your business enterprise. However, you must do it the right way.

There are many accounting and bookkeeping best practices for your small business to succeed. They include the following:

1. Seek Professional Assistance

As a business owner, you're probably a professional manager, not an accountant. Therefore, you may lack enough knowledge to complete your business accounting and bookkeeping tasks. That's why you need to hire a certified public accountant (CPA) to do the work for you to ensure you avoid significant financial challenges.

Hiring a small business CPA has several benefits. For instance, they ensure you comply with the tax laws. In efforts to reduce costs, small business owners may be tempted to file taxes on themselves. But this is too risky since you can make several mistakes. For that reason, it's necessary to hire a CPA. A CPA will ensure your business complies with tax laws and save you from potential non-compliance penalties. 

Apart from that, a CPA can help manage your business finances. They'll take full responsibility for tracking your income and expenses. As such, you can implement effective ways to boost your cashflows. They'll also ensure your books of accounts are well balanced, enhancing your business finance management strategy.

2. Establish An Internal Control Mechanism

If you entrust your employees to your business's accounting and bookkeeping, create an internal control mechanism. In this case, you'll ensure a single person doesn't complete the whole transaction from the start to the end. For instance, the employees handling the petty cash book shouldn't be the ones authorizing payments. Also, the person who collects money from the customers shouldn't keep them. The internal control mechanism promotes transparency in your business's financial transactions.   

3. Separate Your Personal And Company Finances  

Another vital accounting and bookkeeping best practice for small businesses is to keep personal and company finances separate. If you put them together, you'll likely encounter problems with your cashflows and tax payments. Besides, you may lose your personal finances, especially if your business isn't a limited liability.   

Keeping your personal and business funds in the same bank account might seem okay if you manage your small business yourself. But it's not a good practice at all. So, always ensure your personal and business finances are completely kept separate. Ensure you open different bank accounts—one for the business and the other for personal finances. 

4. Decide Which Accounting Method To Implement

There are two primary accounting methods you can consider for your small business. These are cash basis and accrual accounting systems. In the cash basis accounting method, you'll record the transaction when the payment is made. For instance, you'll record a sale when you've received cash from customers and an expense when you've already paid. This accounting system mainly applies to a business that deals with cash only.   

In an accrual accounting system, you'll record transactions regardless of when you receive payments for sales or made payments for expenses. It's the most commonly used accounting method, especially for businesses that sell goods or services to customers on credit. Evaluate the two accounting systems to determine the most suitable for your financial transactions.

5 Invest In Accounting Software

Although accounting and bookkeeping are necessary for your small business, sometimes it can be overwhelming, especially if done manually. You should record each financial transaction once it occurs. Otherwise, you might not accurately record all your business income and expenses. Investing in accounting software will help simplify the financial transaction recording process.

Determining your needs is one of the best ways to find the right accounting software for your business. It should be able to handle all your financial transactions with ease. Another essential feature of good accounting software is scalability. When your business grows, your accounting and bookkeeping will also increase. The best accounting software should be able to grow with your firm.

Ensuring the selected accounting software has a simple user interface is also crucial. A complex system may hurt the productivity of users. It may also force you to hire experts to train your team members to work with it. Accounting software with a simple interface will help save time and money, boosting your company's productivity and profitability.

6. Monitor Your Accounts Receivables

The long-term growth of your business depends on the money you collect from customers. However, you may have challenges if the customers take too long to settle their accounts receivable. For instance, it'll hurt your cash flow strategy, which means you won't be able to pay for your operational expenses. You should monitor your debtors to ensure they settle their accounts' dues on time. The best way to achieve this is to establish an effective invoicing system that encourages customers to make timely payments.

In connection with that, you can consider working with a factor invoicing company. It involves working with a company that can buy your account dues at a discount. As such, you'll always have enough cash in your business to help run all your daily operations.

7. Create Budgets

Another vital strategy to enhance your accounting and bookkeeping process is to prepare budgets. It involves creating estimates for expected incomes and expenses. Doing so will help you to allocate resources to the most profitable projects or make better decisions. It's also one of the best ways to plan for the future.

Takeaway

The success of a business majorly depends on its accounting and bookkeeping systems. You can enhance your cash flow when you keep accurate accounts of accounts. It also helps you to prepare comprehensive final accounts, which are essential in decision-making. To achieve that, you'll have to establish important accounting practices, which include setting up an internal control system, keeping personal and business finances separate, investing in accounting software, and deciding on the correct accounting method for your company.