Top Bookkeeping Tips For Small Businesses In Phoenix
As per the National Federation of Independent Business report published in 2014, Phoenix in Arizona ranked fifth best city in the U.S. for operating a small business. The region’s rebounding economy coupled with favorable climate and entrepreneurial culture has paved way for small business owners to thrive and grow their businesses. A number of small businesses in manufacturing and healthcare businesses have emerged in business-friendly Phoenix over the last few years, while the region records new entrants each year.
Top Bookkeeping Tips For Small Business.
Starting a business is herculean as the very idea of bookkeeping is fearsome for owners of small businesses who are new to the task. Moreover, recruiting personnel or outsourcing the same is often not viable for small businesses, at a very early stage. But, once put into practice, bookkeeping turns out to be a simple task that involves penning down business income and expenditure right from the beginning and maintaining accuracy. In the beginning, a business could choose to either follow ‘Single-entry’ bookkeeping or ‘double-entry book-keeping’. The single entry system is appropriate for budding and very micro businesses, which could eventually shift to double-entry bookkeeping as their business grows.
If a business owner decides to take the onus of bookkeeping, then he should first begin with maintaining cash purchase receipts and invoices relating to business expenditure. Some of which include bank and credit card statements, utility bills, cash or cheques, payroll records, etc. One can either keep these records on paper or computer spreadsheets; the most efficient and effective way is to invest in basic bookkeeping software. The electronic method of bookkeeping has done away with the age-old process of recording transactions in journal first and then posting it to respective accounts in the general ledger. Under electronic format, the purchase invoice will automatically update the relevant general ledger accounts such as Purchases, Accounts Payable, Inventory, etc. Such sophisticated software eliminates accounting errors to a large extent. However, a business has to keep an eye on some of the basic rules of bookkeeping.
1, A bookkeeping process starts with source documents, which should first be sorted out for all transactions, operations as well as other events related to the business. For example, supplier’s invoice is considered as a source document for supplies purchased, which is accompanied by the company’s purchase order and acknowledgement. As per the Federal Law, a business in Pheonix should retain certain documents for a period up to 6 years, while Audit report, cash reports and a list of other specified documents are required to be stored indefinitely.
2, Once the source documents are in place, a business should go ahead with keeping records of transactions.
– The purchase of supplies on credit
– The sale of merchandise on cash.
– Rent paid for office space
– Purchase of equipment for office
– Borrowing money from the bank
The accounting software will record such transactions under a number of accounts such as Accounts Receivable, Cash, Loans Payable, Sales, Purchases, etc.
3. Recording of transactions – It is an ongoing process, and so a business owner should commit a specified time each week towards managing finances and updating software with weekly new invoices. On an average, it will take in between 30-90 minutes per week for a small business entrepreneur to accomplish the task.
4. Separate Out Accounts Receivable From Borrowed Funds – During the initial stages, a business owner often needs startup capital and financial assistance to undertake business-related activities. Such requirements are either met through loans from banks or borrowed funds from various sources. In such cases, it is important for a business owner to carefully draw a line between receivables and income from borrowed funds.
5. Eye On Receivables – A bulky and large receivables column is an encouraging sign for a business, but when it starts piling up then the perception could change. Receivables do not mean real money until clients clear their outstanding balances.
As per US GAAP accounting standards, Accrual method applies to Receivables, which means that they are recorded when earned and not necessarily on receipt of cash. Hence, in order to prevent receivables from ballooning to an abnormal level, a business owner should aim at regularizing the payments. New orders should be delivered to existing clients only after they clear their previous outstanding balances. A publication, Arizona Small Business Resource pointed that the U.S. Small Business Administration (SBA) has clearly set a guideline of ‘Aging’ of accounts receivables in its business loan program.
6. Reconciliation Of Bank Statements – Even if small businesses review their cash flow statement and bank statement separately, they should diligently double-check and reconcile the bank statements on a monthly basis. The practice will help business owners identify discrepancies if any and keep them more aware of bank and cash-flow situation.
7. Separate Tax Account – Each receivable carries a tax element for a business owner. Hence, creating a separate tax account and transferring the tax paid on each receivable to the said account will make filing taxes hassle free. A disciplined approach in this matter would relieve an owner from end-moment tax rush. Over the last few years, Arizona Legislature has tried to cut business taxes, which increases probability for Phoenix business owners that any surplus under this head could be invested back into the business.
8. Cash Flow Statement Under Check – The cash flow for most of the small businesses is volatile, which means that it demands special attention from the business owners. If bookkeeping software is in place, then it will be easy for a business to keep a tab on cash flow statement at all times. A watchful eye on the cash flow statement would help a business rectify cash deficit situations through various financing means. Additionally, monitoring cash flow statement will ensure that debts are properly covered at all times, and there is no lapse midway.
9. Tracking Daily/Weekly Expenses – During initial stages, an owner should track everyday expenses that are incurred in the conduct of a business. Detailing expenses on a daily basis will allow a business owner to get a clearer picture about the direction of finances and help prepare a budget estimate for the upcoming weeks. Also, an owner would have full control on business expenses, which would give him an opportunity to tape any superfluous expenses.
10. Keeping Up Business Income -The main goal of a small business is to keep it running and eventually help it grow into a bigger entity. But, crunching numbers and predicting how much it will take to keep the concern running is a complicated task. Essentially, the process is ongoing and largely depends on an efficient system of maintaining expenses and achieving a sustainable income each month.
Keeping Up Business Income
Since business income is one head, which is easy to calculate, hence a small business owner should always keep an achievable yet strict target on earning the same. One could not miss the point that it is business income that motivates a business to scale up to the new levels, where bookkeeping functions as a ladder.
Short Leash Hot Dogs is a handy example how owners Brad and Kat Moore took a big leap in their business by moving from a food truck to a permanent location in Pheonix. Also, the Small Business Survey conducted by Chase Bank and the Greater Phoenix Chamber of Commerce in June, 2013 outlined that 72 percent of Phoenix small business owners had the confidence about the growth of their business’s revenue.