Most SME owners are not accountants by trade. Whatever their background is, whether it be product development, management, HR, or IT, business owners must know the basics of financing and accounting in order to run their company better.
Fortunately, SME accounting is pretty simple. Businesses that run in a single state and utilise a straightforward business model have only three key accounting priorities:
- Maintain proper bookkeeping
- Ensure they earn more than they spend
- Pay taxes on time
However, as easy as it seems, without the proper knowledge and financial background, it can be tricky for business owners to manage their accounts. Hence, here are some accounting strategies SME owners should be aware of.
1. Separate personal and business accounts
One of the fundamental errors that SME owners make is mixing their personal and business funds. While many entrepreneurs use their personal resources to fund their start-ups, personal accounts should not be mixed with the business’s earnings and expenses.
One way to avoid doing so is to develop a stable business model. Create a corporate checking account and pay yourself a monthly fixed income from it. You may also apply for a corporate credit card for certain expenses you wish not to pay cash in.
2. Calculate total hiring cost before opening up job opportunities
Hiring employees involves more than just paying their wages. There are also CPF, benefits, and training to factor in. These additional costs add to the company’s expenses faster than many SME owners realise. While some are able to keep up to on-time remunerations, many business owners find themselves struggling to keep up with payments.
Never have to find yourself cutting compensations just because you cannot afford to pay your employees on time. SMEs cannot afford to lose staff.
3. Maintain regular profit and loss check
This is an essential accounting tool that helps you keep your business’s earnings and expenses in check. Every public company are required to release the statements every quarterly. While small businesses do not need to do so, profit and loss statements are a good practice to ensure your financial goals are met.
Here are some steps to calculate your profit and loss:
- Sum up the earnings you received in the quarter
- Sort your business’s expenses into two main categories: Cost of goods sold and operating expenses
- Subtract your business’s expenses from your total earnings to derive your operating profit
- Subtract taxes and interest from the operating profit to check if your company profited or lost in that quarter
Maintaining regular profit and loss checks allows you to rectify any issues that may surface during that quarter before it becomes a severe problem to your business.
4. Always ask for a receipt and keep them
You can claim a huge bulk of your corporate expenses as full or partial tax deductions. Expenses such as meals with clients, office rent, and ad campaigns are examples of tax-deductible corporate expenses. However, in order to do so, you will need the receipts for verification and tracking purposes.
5. Use accounting software
Accounting software used to be a costly affair for many SMEs. However, with much comprehensive software available on the market being really affordable or even free, SME owners should look into using them. This software with a ton of functions and services such as sales tracking, inventory management, budgeting, payroll, financial statements, and taxes.
Accounting may not be the most liked aspect of running a business, but it definitely is a vital aspect. Making a mistake in specific procedures will affect future operations, especially if you are looking into expanding your business. If you are struggling, there is no shame in looking for professional help. AG Singapore provides not only dedicated and quality accounting services for small businesses in Singapore but also tax services, new company incorporations, and company GST registrations. Contact us at +65 6635 8767 to find out more today!