Thanks to the wide availability of top-notch accounting solutions in countries like the Philippines, it’s now quite easy for small- and medium-sized enterprises (SMEs) and startups to manage the financial aspects of their businesses in an accurate and efficient manner. Today’s tools can automatically track cash flow and make it a cinch to reconcile complex accounting figures, thus freeing up entrepreneurs to pursue other activities that can directly contribute to their profit margins.
Having more high-tech tools to streamline your accounting processes, however, won’t be enough to help you achieve better financial management for your business. If you head an SME or startup, it’s still in your best interest to familiarize yourself with accounting basics and best practices. Having a foundational understanding of business accounting will empower you to be more proactive about finances and make sound financial decisions based on your progress.
Below are some accounting basics and best practices that entrepreneurs of all kinds should be aware of when managing their finances:
1) Separate Your Business and Personal Finances
The very first principle you should know as an SME or startup owner is to keep your business finances and personal finances separate from each other, for example by opening a dedicated business banking online account for all profits and expenses from business operations. Keeping a separate banking account will help you disentangle your personal transactions from that of your business establishment and track the latter’s income and expenses more easily and accurately.
Maya Business Deposit is a digital bank account that allows entrepreneurs based in the Philippines to do just this. More than being just a safe space for storing funds and profits, this online business banking option promises high interest rates, permits quick and free transfers, and requires no minimum balance. Keeping your money in an intuitive business banking Philippines platform will help you manage your business funds and gain a 360-degree view of your startup or SME’s financial health.
2) Maintain Regular Bookkeeping Processes
To maintain accurate numbers, it’s a must to keep a record of each and every transaction that your company takes part in. This requires diligently recording sales, purchases, and expenses.
In the digital age, such a task typically means utilizing accounting software that can simplify bookkeeping tasks. Linked to an SME business banking account, such a solution can track and record every transaction that a company undertakes. Knowing that, be conscientious about your bookkeeping practices so that you can generate up-to-date financial reports, gain updated insights into your financial performance, and make informed decisions based on real-time data.
3) Be Proactive in Monitoring Your Cash Flow
Proactive cash flow management is key to maintaining a healthy financial position. By regularly monitoring cash inflows and outflows, SMEs are better poised to identify potential cash shortages and take timely action to address them.
This best practice involves diligently tracking accounts receivable (ARs) and accounts payable (APs) and following up on outstanding invoices to expedite payment collections. Forecasting cash flow will also help an SME or startup owner anticipate periods of high cash demands and make sure they have adequate cash reserves for these instances.
As a result of a proactive cash flow management strategy like offering your clients early payment incentives, you’ll make immediate revenue and decrease your risk of going in the red. On top of ensuring steady cash flow, this strategy will allow you to build a safety net for days when the business’s expenses are higher than usual.
4) Create and Update Business Budgets Regularly
It’s also prudent for SMEs and startups to develop and update comprehensive budgets on a regular basis. Budgets serve as roadmaps for financial planning and resource allocation. If you can set clear financial goals and project your revenues and expenses through your budget, it won’t be as hard to make responsive decisions regarding investments and cost management.
Once the period has passed, it’s also good practice to compare your actual performance against the budget. This way, you can assess variances and adjust your strategies, for example by optimizing your purchasing decisions or controlling costs.
5) Implement Effective Expense Tracking
Speaking of controlling costs, tracking business expenses in an organized manner is a non-negotiable task that every startup or SME owner needs to stay on top of. Categorizing expenses appropriately enables a business to gain insights into different cost centers.
You can utilize expense management software to simplify this process and allow businesses to generate expense reports easily. This, in turn, will help you identify areas where cost-cutting measures can be implemented, all without compromising the quality of your products or services.
6) Reconcile Bank Accounts Regularly
You’ll also want to conduct regular bank account reconciliations to ensure that all your financial transactions are accurately recorded. The bank recon process will also help you identify any discrepancies or errors.
Business owners and their accounting teams should periodically compare the business’s financial records with its bank statements and resolve any discrepancies promptly. This practice helps maintain the accuracy of the business’s financial data and strengthens the overall financial control a business has over its assets. In some cases, it can also help SMEs detect unauthorized transactions or errors and address these as soon as possible.
7) Comply with Tax Regulations in a Timely Manner
It’s critical for SMEs, which make up 99.5% of all businesses in the Philippines, to keep up and comply with tax regulations and requirements. Business owners should be aware of relevant tax deadlines, prepare accurate tax returns, and ensure timely tax payments. Familiarizing yourself with allowable deductions and tax incentives will allow you to maximize your tax savings while maintaining compliance and avoiding potential fines.
8) Seek Professional Accounting Advice
Lastly, engaging with qualified accountants or financial advisors can provide SMEs with expert guidance and support when it comes to organizing their finances. Accountants can offer insights into financial performance, tax planning, and compliance matters. Access to the expertise of such a professional will enable an SME or startup owner like you to make sound financial decisions, navigate complex accounting standards, and strategize for business growth.
Adopting these accounting basics and best practices will give business owners the means to navigate complex financial challenges and seize opportunities as they grow their enterprises. Put these into action at the very beginning of your commercial endeavor, and you’ll be able to set a solid foundation for building up your business finances.
