Every year, more and more people decide to follow their passions and start their very own businesses. However, this venture comes with a task that no one looks forward to – accounting.
Although they can be excessively boring, time-consuming and even challenging, accounting and bookkeeping are vital tasks when running a business. Without strong accounting skills, new business owners can’t maintain healthy cash flows or increase their profits sufficiently, which can ultimately lead to failure.
To avoid financial difficulties, all new business owners should work on their accounting and bookkeeping skills. Here are the top five accounting skills you should focus on.
1) Using accounting software
Cloud-based accounting software is a must-have tool for new business owners. If you lack accounting experience, accounting software can give you the support you need to start learning how to run a business successfully.
In addition, accounting software allows you to automate a wide array of accounting tasks, helping you spend less time on accounting and more time on other areas of your business. For example, if you choose Xero or Sage accounting software, you can take advantage of fantastic features such as invoice generation, payroll, bank reconciliation and reporting.
2) Monitoring your financial performance
One of the most important accounting skills you must develop as a new business owner is the ability to monitor your company’s financial performance. This will help you spot issues before they escalate and threaten your business.
To monitor your business’s finances, you need to keep track of your cash flow, which is the amount of money being transferred into and out of your business. To do this, you need to monitor your business’s bank account (which should be separate from your personal bank account) and produce a cash flow statement. By keeping on top of your cash flow, you can ensure your business always has enough cash and won’t be crippled by one late payment.
Another financial document you need to pay attention to is your balance sheet. This summarises your liabilities, assets and shareholders’ equity. By checking your balance sheet, you can accurately assess your business’s current financial position by seeing what it owes and what it’s worth.
Once you have a firm understanding of your business’s finances, you’ll be able to make accurate financial projections. Forecasting future finances will help you detect problems early on and choose the right direction for your company.
To help you make predictions, you can use the helpful tools provided by your chosen accounting software. Many accounting software packages include in-depth financial reports and forecasts, saving you time and effort.
4) Calculating taxes
Tax returns fill many new business owners with dread, but if you learn how to file your taxes quickly and accurately, you can eliminate some of the stress associated with this task and focus more of your time on other parts of your business.
One key tip is to automatically move your estimated tax money into a separate account so you don’t spend it. Then, as the deadline for filing your tax return approaches, you should get started on calculating your taxes as early as possible. Your accounting software will be a fantastic resource when completing this task.
5) Knowing when to outsource
Finally, it’s important to understand your limits and seek help when you need it. If you’re struggling with the accounting side of your business or you simply don’t have enough time for it, then hiring an accountant could be the perfect solution.
However, don’t assume you can just hire an accountant from the start and never learn any accounting skills. To be a good business owner, you should always understand and keep track of your business’s finances, even if you hire an accountant to handle the time-consuming tasks for you.
Final Thoughts: Developing Your Accounting Skills
Accounting may not be your passion, but it’s still vitally important when running a business. To ensure that your business is thriving, you must always stay on top of your finances and develop your accounting skills, no matter if you find this process difficult.
However, if you need extra help, there are a few options available to you. Accounting software is a huge benefit to any business, and hiring an accountant is a strong choice as your company grows.