Top 6 Accounting Best Practices Your Business Should Follow
Knowing the building blocks for effective managerial and financial accounting is critical for any company’s financial health. Following and implementing good accounting methods will help you make informed decisions and provide your business with financial stability and growth.
In this article, we will look at the six best accounting practices your business should follow
1. Clear Financial Planning
A company’s financial status being successful starts with a clear and well-thought-out plan. While there are many ways to develop a financial plan, we prefer Financial Scenario Planning and Strategic Budgeting.
Financial Scenario Planning is a proactive planning tool that can prepare your business for any scenario. To start financial scenario planning, brainstorm all occurrences that could impact business expenses and financial positioning.
Then create a base, best, and worst-case scenario for each occurrence:
- Base case: Use data from the previous year to predict the most likely scenario for your occurrence.
- Best case: Imagine a situation where your occurrence exceeds projections (adding new customers, making a big acquisition). It’s important when using this scenario to be realistic with your projection.
- Worst case: What’s the worst situation that could arise in your business in the coming year? Create an action plan for this scenario.
Brainstorming and building out potential scenarios that might impact your business’ finances help you make more informed decisions, give investors an in-depth preview of returns and risks, and minimize losses.
Strategic budgeting is the process of developing a budget that is based on your strategic business plan.
Start by creating a strategic business plan that includes future corporate milestones, what tasks must be done to reach them, and Key Performance Indicators (KPIs). Then use your budget to gauge if the finances of your business are on track.
Download our e-guide below to help you create a strategic budget.
2. Set up Fraud Alerts
Unfortunately, the most common victims of fraud are small businesses.
Preventing fraud in your company starts with putting fraud practices in place such as segregating accounting duties, adding outsourced oversight, enforcing time off and vacation policies for all employees, and reviewing statements monthly.
Setting up internal fraud alerts and protocols provides an extra layer of security on top of your existing practices. Fraud alerts require lenders and creditors to take extra steps to verify your identity before extending or creating lines of credit. Simply send a signed letter on your company letterhead to the commercial relations department of one of the three national credit bureaus (Equifax, Experian, TransUnion) to set the fraud alert protocol in motion.
3. Utilize Automated Software For Certain Accounting Services
Not using automated accounting software is likely costing you time and money.
Finances aren’t always as simple as understanding accounts payable and accounts receivable, and even the best accounting professionals can make mistakes. Accounting software automates tasks, reduces accounting errors, helps with cash flow tracking, and makes your business accounting faster and more efficient. The right software also keeps everything in one place, backed up, and easy to find.
From invoicing to payroll, automated accounting services make sense with the right implementation and oversight. Easily available automated accounting services can eliminate the risk of double payment, incorrect payroll entries, or late payments while reducing your workload. Good accounting software has the right integrations to create a network of technology and communication that supports accounting and operational business functions.
4. Master The Three Financial Statements
There are three financial statements that every small business owner needs to understand: income statements, balance sheets, and cash flow statements. With an understanding of these, business owners can more readily implement best business practices based on clear financial data.
Income statements measure your business’ profitability during a specified accounting period. They give you a clear look at all your revenue and expenses to determine net profit or loss.
Balance sheets show the financial health of your business. A balance sheet reports what your business owes (liabilities) and adds that to how much capital has been invested (equity) to determine your assets. The assets should always be equal to the sum of your equity and liabilities.
Cash flow statements focus on the overall money coming into the business compared to the money going out. While income statements are all about showing profit during a certain period, cash flow statements are a clear way to compare cash inflow vs cash outflow.
5. Backup All of Your Records and Financial Reporting
Backing up your records is an essential practice for the safety of your business and following legal requirements. Fortunately, having the right technology in place automates a lot of the backup process for you.
For all software, user error is the weakest link, so ensuring your fraud protection protocols involve strong password protection is the first step to take. Additionally, it is important to make sure that your technology is itself secure. That requires that you or someone in your IT department researches the security and safety of any new technology before choosing a place to store your financial information.
6. Hire Experts
If you haven’t read the book Who Not How,, this is an exercise in implementing the principles of that book. To get expertise, you can either build it or hire it. Hiring expertise is faster and often more efficient. If you need expert knowledge and insights in your accounting department immediately, the best solution is to outsource the expertise you need.
By bringing in a team of experts, you can easily automate manual accounting processes so your existing accounting team has more capacity and time to work on important and ongoing issues.
An outsourced team of finance and accounting experts can evaluate your accounting team’s skills, accounting structure, current technology, and data cleanup protocols and offer insight on how to run a more profitable and efficient business.Talk to An Expert
Importance of Effective Accounting Best Practices
The value of following good practices for effective accounting can’t be stressed enough.
Implementing effective accounting practices provides the necessary information for you and your company to make informed business decisions. It also creates a clear and objective evaluation of your company’s performance, so you know exactly how and when to make improvements.
Ready to implement these best practices? We can help.