One area where many entrepreneurs struggle at first is the accounting side of the business – with all the time and energy that is needed to grow a small business, many entrepreneurs just don’t have time to keep their books in order.
If you’re running a business without properly set up accounts, you may be sliding gradually into the tax man’s bad books. Even if your company falls below the tax threshold, your books may be audited at a later stage by SARS when you do start to pay tax.
Your bank may also require sales figures and trial balances if you apply for a credit facility, and having no accounting system will not reflect well on you as a business person, even if your company is starting to succeed.
The benefits of orderly accounts
The negative consequences of not having your accounts up and running aside, there are many benefits to having a strong accounting system in place.
Many entrepreneurs view bookkeeping and accounting as painfully boring activities that are only useful when tax returns have to be filed, but this is only a small part of the picture. Orderly accounts are a vital tool in planning your business activities to keep your company in line with your vision and business strategy.
By knowing how much turnover your company is recording and how much profit has been made over the past while, you’ll be able to focus your efforts on increasing sales and tightening your expenses to show a greater profit each financial year. Your accounts will also help you to identify wasteful expenses that can be reduced, and are also a useful tool in picking up signs of fraud in your business – a good accountant will work with you to analyse your accounts and improve the running of your business.
Setting up your accounts
If you don’t have a background in commerce, the best way of setting up your accounts is to work with your financial advisor or accountant and employ a part-time bookkeeper to help you capture your income and expenses. Your accountant should be able to design an accounting system that is easy to use and doesn’t take up too much of your time.
While you are setting up your accounting system, keep these tips in mind:
- Don’t throw away slips and invoices – these are vital documents that prove how your business has spent its revenues
- Keep petty cash to a minimum – instead of using cash for small purchases, use a company credit or debit card. This will assist you in record keeping
- Keep an invoice file – each time you invoice a client, keep a physical record on file for easy reference.