Everything You Need to Know about Tracking the Money Trail

Everything You Need to Know about Tracking the Money TrailStarting a business is scary, gruelling, exhilarating, and often an overwhelming experience. It undoubtedly is one of the most important and risky investments of your life. The process of setting up a business and ensuring its day-to-day sustainability and functioning is an incredibly time consuming process. This can often lead to the business owner overlooking the broader and long-term factors that could make or break the business.

Not all small business owners look forward to the nitty gritty of managing their business expenses. However staying on top of the accounts of your company is the best way to ensure it gets every possible tax benefit available. This helps a lot in reducing stress when tax time eventually comes around.

Keeping tabs on the finances or the balance sheet provides you, the small-business owner, with a sure account of the company’s profits versus its liabilities and debts. Keeping accurate records of your finances is crucial in creating a money sheet to show potential investors or lenders that your company is in good health. This could mean the difference between getting and losing prospective capital to grow your company.

In big successful organizations the chief financial officer is often considered to be one of the most influential people. If your company cannot justify a CFO it is advisable to start reading up on accounting and get familiar with the processes involved.

The Need for Using Online Tools for Accounting

Meet Steve, a small business owner running his own design space. Every morning Steve starts his computer and pulls up a spreadsheet to check the previous day’s cash flow. He then opens his desk to grab some invoices and purchase orders that need processing. He pulls out a calculator, a check book and a few envelopes and starts processing his paperwork.

Stuck all over his monitor are miscellaneous notes – one from an employee who wants to change his income tax withholding, another from a vendor asking for payment by check and yet another from a customer checking up on a requirement.

Steve’s attention is now on ten different things and his original task of processing the paperwork is long forgotten. If this sounds familiar to you than you too need to understand the importance of keeping a firm track of your cash flow without investing too much time and effort in it. This is exactly where online accounting and cash-flow tracking applications can help.

Imagine the amount of time it would free up for you if you were to spend only ten minutes a day checking up on your accounts. The right accounting software creates tailored reports for you in an instant helping you make the right business decisions. Having the right online software also helps you meet your compliance requirements and prepares you for tax time.

What You Need to Know about Accounting Software

What any accounts system does for a business owner is keep a track of the income and the expenditure and generate reports on how the business is doing. In a simple business structure, a quick glance at the bank balance might be enough to get an overview. But that is not the case when things begin to pick up pace. This is where online accounting software comes into play.

Before using an online accounting or cash-flow tracking system, one must have at least a basic knowledge of accounting and finance. Apart from manual systems and spreadsheets, there are two basic options for accounting software: a cloud based system or one where the software and data reside on your own computer and network.

Prices vary but most cloud systems charge on a monthly basis. But beware, you will always need to keep your own backup of data, preferably in a form other software are compatible with. There are various types of online accounting systems available, but it is up to the small-business owner to decide what suits the company’s needs.

Common Money Mistakes Online Tools Can Help You Avoid

Not Maintaining a Ledger – Write your daily income and expenses as well as your current account balance to make sure you know exactly where your company stands on a day-to-day basis. With online tools all you need to do is input the data on the cloud instead of sitting down with a pen, calculator and a ledger to do the grunt work. This saves time and ensures effective book keeping with minimum resource utilization.

Muddled Business and Personal Finances – Opening separate bank accounts for your company is a must. It is far easier to keep a track of business receipts if you do not use the same credit card to pay for your grocery and office supplies. When trying to find a forgotten business expense later down the year you’ll only have to search through one account instead of several. This is far easier to do online as some accounting tools are specifically designed for small businesses.

Inability to Track Profits – Keeping regular tabs on the cash flow in your small business can help you reliably record your profit levels. Tracking sales electronically through a sales register system is a far better option than counting by hand your purchase receipts at the end of each night. Online tools help you track of your sales efficiently and give you an accurate idea of what you have lying in your coffers.

No Tracking of Receipts – Keeping a daily track of your receipts can go a long way in aiding you during tax time. Keep an envelope on your desk where you throw in the receipts gathered at the end of each day. You can enter them into your accounting software as well. This will help you if the IRS suddenly asks you for documentation or deduction from your tax return.

Not Taking Professional Help – Funds are always tight when starting a business. It is tempting in times like these to save money and do away with the need for an accountant. But every business, however small or big requires accounting at various levels. Online tools and accounting software are highly self-explanatory but hiring an accountant will definitely simplify a lot of your problems.

Not Understanding Taxation – Business owners, unlike employees, are responsible for paying their own taxes. It is imperative for any owner to understand what taxes your business will need to pay and how they will be calculated so you can know exactly the amount of money you need to set aside throughout the year. The last thing you need is to submit your tax return be faced with a huge tax bill that you are unable to pay. Take control of your business finances and get clarity about the taxes applicable to your business. Online tracking of your cash flow can help you understand tax calculations better and thus save you money.

What a Good Accounting System Does for You

A sound accounting information system helps answer the following questions crucial to a small business:

  • What assets do we have?
  • How much and what kind of debt is outstanding?
  • Have the year-on-year sales risen over the previous period?
  • Is the rate of return on net assets increasing?
  • What were the cash inflows and outflows?
  • Can the current cash flow pay back debt?

No matter how expensive, time-consuming or tedious accounting may feel, the law requires every business to have an accounting system in place. A sound online accounting and cash flow management system helps you, the business owner, stay on top of the bank balance; monitor receipts and payments; chase outstanding debts; plan cash flow and monitor actual against forecast positions; interpret business and trading conditions; and provide business information to back a request for finance. So do not waste your time and get researching on what is the best tool for you today!