12 accounting practices your business should be doing to succeed

One of the first things you should do when running or starting a business is to ensure your accounting system operates as smoothly as possible. Following certain accounting practices will ensure that this happens.

However, many business owners overlook this vital step. Let’s explore the 12 accounting practices you should start using as soon as possible, including tips on implementing them.

1. Update your chart of accounts

2. Hire a bookkeeper

3. Embrace automated accounting

4. Separate accounting duties

5. Outsource payroll processing

6. Create a procedures manual

7. Start a budget

8. Get rid of your spreadsheets

9. Forecast inventory purchases

10. Automate your invoicing

11. Work with an accountant

12. Use accounting software

1. Update your chart of accounts

Small business accounting starts with the chart of accounts. The chart of accounts is the listing of each account and its description. However, many businesses don’t create enough account categories to produce meaningful accounting reports. 

If you don’t frequently review and update your chart of accounts, you risk having inaccurate accounting records.

For example, say you operate a hardware store with seven departments—each of your main accounts will have a subaccount for each department:

• Your companywide revenue account is #5000
• Revenue for your outdoor department could be account #5100
• Your lumber department may be account #5200, and so on. 

Keeping things up to date, including a chart of accounts, can be time-consuming. Accounting software is a great tool to streamline your accounting methods and do more work in less time.

2. Hire a bookkeeper

If you’re just starting out—say you only have one hardware store—you might be doing the accounting on your own. But as your business grows and you open more stores, the number of accounting transactions will grow too. That’s when you may want to hire a bookkeeper. 

Bookkeeping is the recording of financial transactions in your accounting system. Business owners often hire bookkeepers to enter customer sales transactions, inventory purchases, and business expenses into ‌their accounting software. Using the services of a bookkeeper can free up your time for more important tasks.

3. Embrace automated accounting

Automated accounting can help reduce errors in your business. Key benefits and features of an automated accounting system include: 

• Reduces the risk of data entry errors: Accounting entries that do not balance cannot post. 
• Imports transactions automatically: You can link your bank account and credit card accounts to have transactions automatically added to your accounting system. 
• Reads receipts: A bookkeeper can scan receipts into the accounting software, which automatically tracks expenses and eliminates the need for paper files.

However, even with an automated accounting system, you’ll want to manage your accounting duties diligently—including delegating key roles.

4. Separate accounting duties

As your business grows, your accounting department will grow, too. This may include a bookkeeper and finance professionals, such as a controller, to help with financial analysis.

Having separate individuals responsible for different accounting duties can improve your company’s efficiency. It also helps provide a system of checks and balances. 

Let’s think about your company’s cash account as an example. Whenever possible, keep these three specific duties separate:

• Custody of assets: The person who has physical custody of the checkbook should not have any other duties related to cash processing. Let’s assume that the administrative assistant has the checkbook at their desk.
• Authority: Who has the authority to sign a check? For example, the general manager of your hardware store may have the authority to sign checks for inventory purchases. That same manager should not have access to the company checkbook.
• Recordkeeping: This duty refers to posting accounting entries and reconciling the bank account. The person responsible for this role will generally be your bookkeeper. 

For a very small business, separating these duties may not be possible. Maybe the owner handles two, or even all three, of these tasks. However, it’s best to separate these duties for a growing business.

5. Outsource payroll processing

Along the lines of automating as much of your accounting as possible, outsourcing your payroll will free up your time and ensure that the process goes smoothly.

For example, say you want to pay the employees of your hardware store, even if it’s just a few, you’ll still need to: 

• Collect data: You need to collect withholding tax information.
• Calculate net pay: FFigure out the amount to pay each employee, as well as withholdings for Medicare and Social Security taxes.
• Make payments: You then need to pay employees either via check or direct deposit.
• Report and pay withholdings: Submit tax filings and payments for taxes to the IRS and proper state departments.

If you run payroll for your business, you’ll have to manage any changes to payroll, such as tax laws and employee turnover. You may hire new employees while others leave. Workers also may change their tax and benefit withholdings. The taxes due for a particular employee can also change frequently over time.

Outsourcing the payroll process means you can worry less about managing payroll taxes and adjustments for tax law changes.

6. Create a procedures manual

Having a written procedures manual is especially important as your business grows and you bring on more employees. This manual should include all the routine tasks of your business—not just the accounting functions. 

For example, things to list in a procedures manual include: 

• The routine task 
• Details on how to complete the task
• How often the task is done 
• Who is responsible for the task
• Who is responsible for making sure the task is complete 

A procedures manual clarifies how you do business and reduces confusion about your operation. The manual is also a great training tool for your staff.

7. Start a budget

Savvy business owners create a budget before the start of each calendar year. When you make a budget, you must consider several variables in your business. You'll improve your decision-making by tackling key business challenges in the budgeting process. 

One of the key elements of good budgeting is proper cash management. No business can operate without sufficient cash inflows each month, and many firms do a poor job of forecasting expected cash flows.

Key accounts that affect your cash flows include accounts receivable, inventory management, and debt payments. Managing those three accounts can help determine the amount of cash you need to operate.

8. Get rid of your spreadsheets

Using spreadsheets for accounting requires far more time than more automated methods, and the risk of making mistakes is much higher. As your business grows, small transactions increase, and so does your accounting work. 

If you’re posting more monthly transactions, spreadsheet data entry makes accounting more difficult. Spreadsheets don’t integrate with bank statements or your payroll records. Also, training is more complicated, as spreadsheets require more steps and input work.

Instead, look into accounting software for your bookkeeping and accounting tasks, and minimize the use of spreadsheets.

9. Forecast inventory purchases

Companies that carry inventory, such as hardware stores, should calculate their ending inventory balance at the end of each month. This allows you to ensure you have enough products to meet customer demand in the next month. 

The formula for ending inventory is: 

Beginning inventory + purchases – sales = ending inventory

Ending inventory is often shown as a percentage of monthly sales. Assume, for example, that your hardware store’s beginning inventory balance of lawnmowers is 50 units and that the company forecasts 300 mower sales for the month.

During the month, the business buys 280 mowers, meaning its ending inventory balance is:

• 50 beginning inventory + 280 purchases - 300 sales = 30 ending inventory

Use the ending inventory formula to ensure that you maintain a sufficient amount of inventory.

10. Automate your invoicing

You need timely payments from your customers to maintain positive cash flow in your business. One way to improve your business finances is to automate your invoicing process.

Since most of the invoice data for repeat customers stays the same, using technology for automation can reduce the processing time. Invoice automation, like QuickBooks offers, can set up recurring invoices for clients who place the same orders each month. 

Your invoicing system will fill in the customer’s name, billing address, and email address and input the products and services based on the customer’s last order. Once the invoice loads, you can verify that the customer information is the same and adjust the items and amounts listed on the invoice.

11. Work with an accountant

As your business growth continues, say now you have several hardware stores, then it’s time to consider an accountant. An accountant can use the data from your bookkeeper—along with payroll data and other records—to generate monthly financial statements, including the balance sheet and income statement.

Accountants can help with key functions beyond what bookkeepers do. For example, adjusting entries for depreciation expenses or generating reports for business owners.

12. Use accounting software

Using accounting software is likely one of the first accounting practices you should implement, even if you’re a one-person shop. Accounting software plays a key role in avoiding the negative impacts of improper accounting, such as: 

• The time it takes to correct accounting mistakes 
• Penalties, fees, and fines for filing incorrect tax returns for forms 
• Upset stakeholders, such as creditors or regulators, due to inaccurate financial reports 

More importantly, you can’t make informed business decisions if your accounting system produces bad data. You can’t evaluate the financial health of your business if your financial systems aren’t operating correctly.

Streamline your accounting and save time

Successful business owners make continuous improvements. Adding these 12 accounting practices to your business today will significantly improve your accounting processes—regardless of your growth stage.

Accounting software like QuickBooks will help manage bills and track expenses—all of which will reduce errors and save you time.