Your Business

Accounting tips for small businesses

Team Waddle  •  16 February, 2022

There's much to do and learn when setting up your small business, with money at the forefront of every business operator's mind. Business finances can be complex; there's invoicing, tax returns, inventory management, online payments, payroll and countless other financial transactions.

While your game plan may be to leave this all to a professional accountant, having a basic knowledge of business accounting and having the right business accounting software can truly set you up for ultimate business success. Keep reading to find out what you need to know and how cloud accounting software can help support you and your accountant.

What does a small business need when starting out?

When small business owners start, they tend to rely on outsourcing their full accounting process to accounting professionals. While this is a sensible option for some, having a handle on the basic accounting principles of business can add meaning to your business activities, aid your decision-making, and provide guidance on what goes on regarding your company's finances.

Business accounting basics

It's no big secret that cash flow is often tight for small businesses that have just started out. Knowing the right way to go about expense tracking, what your accounts payable are, how to process payroll and set up a bookkeeping system and bank accounts will lay a solid foundation on which to grow your business, and maximize your flow of cash.

Set up accounts and accounting software

Establishing bank accounts is probably already ticked off of your to-do list, but have you considered a separate bank account to help save for lulls in incoming funds or your first tax bill? What about setting yourself up with the right accounting software? Xero is an incredibly user-friendly and intuitive cloud-based accounting software solution that can provide a sturdy framework for all of your accounting needs.

Understand how to read business financial statements and what it means for your business health

Larger businesses have the luxury of in-house accountants to mull over every statement and translate that into a report on the overall trajectory of business success. That luxury isn't afforded in a small business, so brushing up on what your financial statements say about your financial position means you'll have a grasp on where your balance sheet sits and what information is captured within your profit and loss (P&L) statement.

Understand invoices vs receipts

It's called a balance sheet for a reason — it's meant to balance! When business owners get invoices and receipts mixed up, it can cause all sorts of issues for your books. So it's important to understand the difference.

  • Invoices. An invoice is a bill that's sent out after a product or service has been delivered. It forms part of the accounts receivable for the business that issued the invoice. For example, if you issued the invoice, your accounts receivable ledger grows and the invoice is counted as an asset (which can be used as the basis for invoice financing).
  • Receipt. A receipt is proof of payment and is issued once payment (possibly for an invoice) has been made.
  • The main difference to understand is that an invoice is given as a statement to indicate that payment is required, and the receipt is given once the payment is made.

Have reasonable payment terms

After your product or service is delivered, you'll issue an invoice to your customer stating how long they have to pay you. Terms of 14 to 30 days are common, depending on your industry.

The key is finding the balance between keeping your customers happy and keeping your cash flow moving. If your payment terms are too short, your customers might get disgruntled. If your terms are too long, you might find yourself running out of cash.

If your customers are taking a while to pay their invoices, invoice finance can help speed up the process — you can get your hands on the cash before your customer has made their payment.

Why your small business needs accounting software

The adage that time is money is never more accurate than for those running small businesses. The time spent manually invoicing, recording financial information, checking over business transactions, inventory tracking, communicating with customers and paying fees can seriously eat into the limited time you have as a small business owner.

Automating your business transactions through a tried and tested accounting system like Xero means recurring transactions, invoice reminders, financial transactions and records are taken off your plate, freeing up your time to source the most satisfied customers you can!

What is the best small business accounting software?

With a growing number of software options in the market, choosing the best accounting software for small businesses can feel complicated. Whilst there are various products to consider, Waddle's parent company Xero offers a wide variety of tools and features to support your small business from day one.

Benefits of Xero

  • A cloud accounting system such as Xero mitigates the risk of storing files digitally on your own computer and potentially losing access to everything you need to run your business day-to-day.
  • Xero makes sending invoices a breeze, meaning you spend less time invoicing and more time doing what you do best!
  • Your expense management needs are handled with Xero. Forget complicated income and expenses tracking or sifting through credit card statements and bank transactions; Xero can track income and cover everything from source documents to payroll, bookkeeping and more.
  • Dreading tax return time? Xero makes preparing for tax time as straightforward as possible for you and your accountant.
  • Speaking of the ATO, did you know that Xero supports single touch payroll so that you can effortlessly report your employee's tax and superannuation information to the tax office with confidence?
  • If you're looking to switch to Xero, you'll be relieved to know that it can easily import your data by using a bulk CSV file after your initial Xero setup. It's advisable to get your accountant to help, but your chart of accounts, customer contacts, bills, invoices, and fixed assets can all shift across seamlessly.

Even if you don't use any of the additional features of Xero just yet and are primarily looking to send invoices to get your funds moving, Waddle can help. Get in touch with us today to find out how you can access funds tied up in unpaid invoices to boost your business cash flow and solidify your business's financial health.

You Might Also Be Interested In...

Ready to get started?

Connect your accounting software to see how much you could borrow