6 Accounting Tips for Your Business
2020 was unquestionably an unexpected year! During difficult times, it is more important than ever to examine long-term business strategies that have been impacted, as well as to tighten up your bookkeeping. Here are some accounting pointers for planning for 2021.
1. Make the transition to accrual accounting
If you are still using cash accounting, this might be a good time to move to accrual accounting rather than continuing to use cash accounting.
The technique of documenting revenue and expenses as they occur rather than when payment is received or made is known as accrual accounting. This ensures that there is no time lag between incurring a cost and paying it, as well as between selling something and receiving payment for it.
An excellent illustration of this would be entering an invoice into your accounting system as soon as you receive it, even if you don’t intend to pay it until the date that it’s due.
Accrual accounting provides a more accurate picture of how your firm is performing (you must, however, keep track of your cash flow to ensure you’re not overestimating your ability to pay) and is often the accounting system that most small businesses should strive for.
2. Recognise the inventory
Did you end the fiscal year with a large quantity of goods in the warehouse as well as a number of expenses that appeared to be significantly higher than the revenue? When taken into consideration as an asset, this isn’t necessarily a negative aspect of the situation!
You should check the report on the 30th of June to see if the software that manages your warehouse or inventory keeps a daily record of the stock levels. You could, for instance, add a line item to your balance sheet that is labelled “Finished Goods,” and this line item would indicate the value of the stock you have. You can choose to express the figure as a cost or a retail value depending on your preference.
You may more successfully plan for regular inventory flow in the future year if you have a better understanding of your purchases, stock levels, and sales. The ideal inventory scenario is one that involves frequent turnover so that your cost of goods sold (COGS) and, as a result, margins appropriately reflect any cost increases or decreases as they occur.
3. Request immediate asset write-offs
There are some circumstances in which small businesses can be eligible to make claims for quick asset write-offs. In the year that an asset is put into service or installed and made ready for use, the owner of the asset is eligible to claim an immediate deduction for the portion of the asset’s cost that relates to the business.
Instant asset write-offs have several applications and can be used for a variety of purposes, including the following:
- as long as the cost of each asset is less than the applicable criterion, you can have several assets.
- purchases, both new and used.
Cars used for business are allowed, but only to a certain extent. For the 2019–20 tax year, for example, the automobile limit is $57,581. If you utilise your vehicle for 75% of the time for business, the sum you can deduct under the immediate asset write-off is 75% of $57,581, or $43,186.
Instant asset write-offs for corporate assets have increased to $150k, up from $30k last year, and eligibility has changed.
Changes, eligibility, thresholds, and directions for claiming quick asset write-offs can all be found on the ATO’s website.
4. Forecast sales for 2021
This may appear to be hard to accomplish after the year 2020, but there is now data covering the previous six months on how the epidemic and subsequent lockdowns have affected small businesses. There are emerging new consumer trends, some of which include an increased preference for products created in Australia and an increase in spending on groceries and household goods. Either you have realised your position in the shifting market or you have realised that you need to focus on pivoting your product. Either way, you need to go to work.
In any scenario, it is absolutely necessary to investigate your revenue during the course of the previous months and years in order to estimate what your sales will be in the next year. If you are aware of how your company has been impacted over the past year and you are moving in the direction of expansion, you may be able to set your sights on a revenue increase of between 20 and 30 percent in 2021.
Taking the numbers from 2019 and aiming for an increase of 10–20 percent could be more realistically achievable. There are no right or incorrect answers when it comes to sales forecasting; rather, it is simply a matter of making careful assumptions based on your own sales history and observations of things in the outside world.
5. Set up a budget
After making an estimate of your sales, you may examine your expenses to compile a budget that will tell you how much money you ought to be spending and what you need do in order to achieve your objectives.
To get an idea of your consistent costs, you should first run the profit and loss statement for the previous year over a period of twelve months.
After that, you can decide whether these charges are going to be constant or variable. Fixed expenses do not change no matter how much business is done or how big the company gets, but variable pricing change depending on how many products are sold.
For instance, the cost of email marketing software might be $100 per month regardless of how many campaigns you run, while the cost of packing will vary in proportion to the number of products sold.
If this is the case, then you can make an estimate of your constant expenses by basing it on your monthly costs, and you can compute the amount of your variable payments as a % of sales.
Your attention will be drawn to areas in which spending may be cut, and other areas in which it could be increased, once you have created a budget. For example, you might decide to spend less on conferences in 2021, but considering your sales goals, you might choose to raise the amount of money you spend on digital advertising.
6. Construct a cash flow prediction
After determining how much you anticipate selling and how much money you intend to spend, you can construct a cash flow projection that will tell you whether or not you should keep cash in the business and when you should utilise it.
A cash flow projection will often begin with an illustration of the starting bank balance (i.e., the real cash on hand) and will then proceed to demonstrate cash inflows and outflows for each period, typically month by month.
In addition to the typical expenditures associated with running the business, outflows will consist of loan repayments, payments to the firm’s shareholders, and the acquisition of assets. At the conclusion of each month, there is a sum of money known as the closing cash balance. This amount is carried over to the beginning cash balance for the following month.
To successfully scale your business, it is essential to have a solid understanding of your cash flow, which centres on the timing of cash flow. You could use a forecasting template in order to produce a prediction regarding your cash flow.
Even though the economy is unclear, you can still employ best practice accounting principles to plan for 2021.
Using strong software to track all of your sales and expenses, as well as generate reports, is really beneficial. Supporting a skilled bookkeeper to remain on top of evolving rules, financial planning, and accounting cleanliness is also a good idea. Here’s to a fantastic fiscal year in 2020-2021!
Expand Your Company
Does your company have a track record of sustained growth and improved profits? Is your company actively working to improve your and your family’s lifestyle?
A successful firm accomplishes exactly that: it gives its owners the time and money they need to realise their lifestyle goals.
Many businesses, unfortunately, and unnecessarily, are a burden to their owners, providing little in the way of money, job satisfaction, and a good work-life balance.
Debts that are spiralling out of control, a bad return on investment, unrealistic working hours, and an overworked owner are all signs that a company needs help.
What is there to lose?
A firm that is underperforming! If you want to:
- Create a business that will run smoothly even if you are not present.
- Boost your net profit.
- Within five years, you should be able to retire.
- AAP can assist you in achieving a work/life balance in your design.
Improving profitability and cash flow
Many business owners cast their nets too wide when looking for consumers, wasting a lot of time and money in the process. Many business owners are offering goods and services that aren’t pulling their financial weight.
Many business owners have inefficient accounts receivable and payable processes that stifle cash flow. We could go on and on…
When it comes to assessing a company’s profitability and performance, only a skilled professional who is objective and has years of experience knows what to look for.
Top 10 Business Growth Ideas
Many business owners cast their nets too wide when looking for consumers, wasting a lot of time and money. Many business owners are selling items and services that aren’t bringing in enough money.
Many business owners have sloppy accounts receivable and payable procedures that stifle cash flow. We could keep going…
1. Belief in Yourself:
When it comes to evaluating profitability and performance, only an objective, experienced professional knows what they’re looking at.
2. Setting Realistic Goals:
Goals are essential for achieving growth. There is no growth-producing force if you don’t have a vision or objective for your company’s future. You can only attain growth milestones if you dream big, no matter where your firm is now. Setting small, realistic, and achievable goals is recommended. Small business accomplishments lead to massive business growth.
3. Set Your Priorities:
Priorities shift with time. Emerging market changes necessitate a rethinking of objectives. It’s likely that some product lines that were once profitable are now losing money or vice versa. The study of strategic business units must be done on a regular basis in order to define priorities. This is quite beneficial in terms of resource allocation.
4. Apply Market Growth Strategies:
For long-term success, continuous improvement is required. It’s feasible that achieving break-even will necessitate a paradigm shift. Adapting and implementing growth strategies in accordance with market conditions can be a critical growth component. These are the strategies:
Producing a new product or introducing a related product line of an existing product to enter a new market.
Producing or distributing a new product with additional features. Design, formula, or simple presentation can all benefit from innovation and adaptation.
Improving sales to gain more market share in a similar business. This is primarily accomplished by lowering the selling price and providing special discounts and promotions.
Current items are being targeted to new market segments. Providing luxury cars on easy instalments, for example, converts non-buyers into potential customers. A small tweak in terms and conditions can bring in more customers.
5. Introduce Referral Program:
Money has proven to be an effective motivator. When sales aren’t meeting expectations, consider implementing a commission-based policy. When you offer a profitable incentive, employees will work hard. Other incentives or prizes can also help to rekindle a desire to work.
6. No Compromise on Quality:
Never, ever, ever, ever, EVER, EVER, EVER, EVER, Customers who are dissatisfied with your product will form a chain of customers who will boycott your product. Compromise on quality is just not an option when it comes to acquiring and retaining customers.
7. Gradual Growth:
Grow slowly but wisely at all times. Taking out a loan to introduce massive products into the market and then worrying about recovery is not a prudent strategy. Attempt to determine product demand, as well as the accounts payable and receivable periods. To keep the system running, a balance must be maintained.
8. Winning Customer Loyalty:
The king is the customer. When the market is flooded with comparable products, you must be client pleasant in every manner imaginable. Customer retention is ensured as a result of this. A long-term asset is a delighted customer. Continue to improve client loyalty strategies by providing membership incentives and royalty programmes, one-on-one correspondence, and a simple return and replacement policy.
9. Digital Media Marketing:
Reaching customers has never been easier or more convenient than it is now, thanks to digital marketing. Improving and outsourcing digital marketing strategy can make a significant impact in terms of providing a successful and efficient online presence.
If you don’t have an in-house digital marketing staff, you won’t be able to handle all of your internet marketing efforts. By giving the top internet marketing services, experts will undoubtedly assist in maximising sales.
10. Expert Consult:
A professional opinion can make a big impact. You might desire to grow, but you don’t know where to start. Alterf Service is the heart of top-rated guidance, offering a wide range of business consulting services.
5 Bookkeeping Tips for Small Businesses
Whether you’re a solo trader, a company, a partnership, or a trust, keeping proper financial records is essential for running a business. You’ll be able to quickly handle your invoicing, cash-to-cash cycle, deposits, credit, and any of the other plethora of daily finances your business engages in with competent, up-to-date bookkeeping. Keeping your finances in order is critical to your company’s growth and success.
Non-business owners who know what they’re doing make it a point to maintain track of their finances on a daily basis. Costs and stress are reduced as a result. When filing a small business tax return, keeping up-to-date financial documents is beneficial. Here are a few pointers from us if you wish to take responsibility of your company’s bookkeeping:
1. Separate Business and Personal Finances
Some business entrepreneurs combine their personal and professional finances. If you’re running a business, you’ll need to register a separate business bank account to keep track of your financial transactions and improve your credit score.
2. Know Your Taxes
You may be familiar with the methods and documentation required if you do your own taxes. However, keep in mind that corporate taxes differ from personal income taxes in terms of the laws, restrictions, and claims you can make. A fundamental awareness of a business’s tax obligations is essential, so consult a professional tax return accountant to ensure you know exactly what you need to accomplish.
3. Prioritise Your Books
We recognise that as a new business owner, you already have a lot on your plate. However, you must prioritise your books in addition to running your business. Keep track of all your documents so you don’t run into any problems when it comes time to file your taxes.
4. Back Up All Financial Records
Ensure that all necessary papers utilised in your business’s day-to-day operations are stored and kept up to date. These records include bank and credit card statements, profit and loss statements, balance sheets, and receipts, to name a few. These might also assist you in establishing a solid and stable financial foundation for your company. Receipts can be saved digitally, eliminating the need to save paper receipts that fade and are difficult to store.
5. Perform a Quarterly Review
At the conclusion of each quarter, take the time to review your bookkeeping and accounting records. Observe any trends, such as rising or falling sales or a rise in the number of customers, and discuss them with your accountant. They can assist you in becoming more prepared for future capital requirements such as expansion and/or the purchase of new equipment.