4 Accounting Practices for Small Businesses

It is quite easy and favourable for most business owners to make the presence of their business firms known to their potential customers. In context to which, having a small retail business an exciting venture in this day and age. Today’s digital technology has made it extremely easy for businesses to reach out to their target audience at an incredibly low cost. Social media platforms like Facebook, Instagram, LinkedIn, Amazon, eBay, drop shippers, etc., provide a free or almost free platform to showcase, market, and sell products which is highly beneficial for business owners and especially the ones starting up.

To bring your retail store to the point that it attains the full attention of the audience, you will need to consider upgrading your accounting game. Here we have listed four essential accounting practices which will help your business grow;

  1. The Perfect Accounting Software
  2. Watch your Cash flow
  3. Track your Inventory
  4. Understanding costs, expenses, break-even point & profits

1. The Perfect Accounting Software

 The perfect accounting software is the head start for your small business, although it can be difficult to pick out just the right one, many accountants in Milton Keynes can personally guide you according to the niche of your retail store.

To make it easier for you to understand what software best meets your business’s accounting needs, as experienced accountants in Milton Keynes we have narrowed some options.

Xero

If you are a retail seller on Amazon or eBay or an FBA trader, then Xero is the best software for you! You can skim through the following features we have listed which will specify how Xero makes the most suitable software for marketers and sellers;

  • Easy reconciliation for transactions on Amazon
  • Amazon sellers can have cash flow integration
  • The software can synch your inventory

Xero has made a really big difference in helping me keep my finances organized. It makes my life easier by making it very easy to get invoices out to customers.”– Ade, founder of Nubian Skin

QuickBooks

QuickBooks is a great alternative for Xero. You might have heard of it since it is a pretty popular software among accountants. It may be the most suitable software for eBay sellers and drop shippers for holding the following features.

  • It has a simple layout and procedure, which makes it easy to use.
  • You can easily link your eBay or drop seller account to QuickBooks app or web.
  • The customer care team is very cooperative. You can make queries related to the software any time you want and you will get a prompt response.

We use the QuickBooks app when were visiting customers… we can now send a quote or invoice on the spot.” – Amanda, Barking Mad

The company provides a free 30-days trial to people who want to have an experience on whether the software is suitable for their purpose or not.

FreshBooks

FreshBooks is definitely the software for a small business. Its rare features make it stand out. Although there are a number of software that have invoicing features but they aren’t good accounting software, similarly, some software are incredible with their accounting features but lag at invoicing features. FreshBooks is a software that can achieve the balance between accounting features and invoicing tools. This software is preferable because it offers simplified invoicing features which is favorable for small businesses which look forward to sending invoices on a daily basis. FreshBooks offers all the necessary accounting features on the go. All your financial operations can be managed from a single dashboard. This software is a perfect combo of both services, some of its features are mentioned below.

It provides;

  • Financial reporting
  • Unlimited invoices
  • Unlimited track of time
  • Project tracking
  • Auto synch  with bank accounts
  • More than 200 integrations
  • Auto reminders for payment
  • Payroll processing
  • Streamlined payment collection

 Its beautiful and really well designed. The invoicing, accepting online payments and keeping track of expenses couldn’t be simpler.”– Roman Mars.

If you are in doubt that this software might not be suitable for your business, then there is good news for you! You can avail a 30-days free trial before buying a subscription, just to see if FreeBooks matches the requirements of your small business.

2. Watch your Cash Flow

If you are a home-based employee or a small business owner, and you think you can manage and differentiate your personal finances from business finances, then you might want to rethink it, because using a single bank account for personal and official purposes is not a very effective business tactic.

If you have your own business then it is preferable you get a separate business account for your finances, this will help you keep a better eye on your cash flow.

Never take your eyes off the cash flow because it’s the lifeblood of business.”

—Sir Richard Branson

Keeping track of the amount of money going in and out of your account will help you get rid of many problems that might occur while you run a business. Managing cash flow will not only let you dodge away problems but will also help your business sustain and grow. To keep track of your cash flow and balance it, you must consider these two practices;

No Early Payments

Early payments do sound good, but if you look into it closely, it is not that much of a good idea if your business does not have enough money to cover other expenses. Here is an example to give you a clear understanding; your customer will pay you in 10 days, you have to pay the manufacturer in 30 days, and you need to pay your employee in 5 days. It would be better to pay your manufacturer on time so you can make other payments timely without disrupting the cash flow, instead of waiting for your customer to transfer to pay your employee.

Keep yourself prepared for the Unexpected

For any business, unexpected up and downs in cost are normal. So it is not possible to avoid these unexpected bumps, however, you can readily prepare yourself for these. We suggest you always keep an extra fund aside so that if there is an unpredicted rise in cost, you can use the extra funds to cover it without disrupting the cash flow.

Being properly prepared is one of the biggest assets in business.”

Keeth Smart

3. Track your Inventory

In order to avoid careless use of goods/money and theft, you can always use inventory management tools such as;

  • Monitor good usage
  • Regular conduction of inventory audits
  • Limited access to the inventory

It is very important to have a tight grasp on inventory management because retail businesses mostly have lots of money in the inventory, and cash is constrained in the early stages of their businesses. This way, you will be able to avoid shrinkage. If you’re unaware of the term “shrinkage”, let me explain. When your inventory has a lesser number of products than it is supposed to have, your inventory might face shrinkage.

Here is an example for your better understanding; you had 20 products in your inventory, out of which you sold 10. Now you must supposedly be left with 10 products but you are left with 9 only. This is shrinkage. This loss of inventory can be a result of theft of a product, damage, or double order, etc.

One more thing you should know about inventory is that the value may change with time. For example; you have 10 articles of clothes, each worthy of £100, then the value of your inventory is £1000. But at various times, there are sales and other discounts, on such events, you sell an article for £80 each, hence the value of your inventory will automatically fall to £800. There are a lot of accounting software that come with an inventory management feature, which helps businesses monitor their inventory very effectively. Another relief if you are not looking forward to investing in accounting software, there are inventory management software also available for this purpose, which are relatively less costly.

A few benefits of inventory tracking, and how it can help you other than avoiding shrinkage;

  • Inventory platforms gather and streamline data related to inventory and orders across multiple channels.
  • You can pin-point slower-moving inventory through inventory platforms, which will allow your business to make high-profit product selling efforts.

4. Understanding Costs, Expenses, Break-even Point, and Profits

When running a business, keeping track of costs, expenses, and profits is the basic move.

The Profit and Loss Statement tells you a lot about how your business is doing. It can also help you to determine ways that you can go about saving money so that you get to bring more money home! Basically, the P& L statement measures all of your income sources versus all your business expenses for any given period of time.”

Darren L Johnson

Cost

The cost of sold goods is directly proportional to the products you have sold. It adds up the inventory that is sold and the cost to make that inventory. An example might give you a better understanding; you have a small business of printers. The parts are worth £100, the person who puts together the parts charges £20, the packaging costs £10, and the shipping fee is £5 on a perhaps an online order, so the total cost of the good sold would be £135. Complex? Well, if you choose a suitable accounting software with the cooperation of accountants in MK, your cost analysis process will be automated and you wouldn’t have to worry about the complications every time the cost of a sold good varies.

Expenses

The expenses which haven’t been added in the cost of the sold good, yet influence the cash flow, profit, or loss of a business, fall in this category. Expenses like utilities, rent, salaries, tax, etc. are the expenses you have to bear regardless of the cash flow of your business.

Dont ever let your business get ahead of the financial side of your business. Accounting, accounting, accounting. Know your numbers.”

Tilman J. Fertitta

Profits

A business generates profit from its sales when it makes sales after meeting its break-even point. It is important to keep a track of your sales and sold goods, not only to find out when you reach your breakeven point but to eye on when you start generating profit out of these sales. Also, when your business is unable to meet the breakeven point, it is important for analyzing how much effort you need to put further, to finally meet the breakeven point. Google Analytics works as a great tool to track the sales of your businesses.

You have to keep your books: how much money you made, how much money youre spending, what you profited, and what youre going to need for expenses.”

Karen Civil

Conclusion

A small retail business isn’t that much different from any other retail business, but some aspects of its accounting need to be taken care of differently. Considering details such as payments, transferring orders, shipment costs, etc. makes it a bit complex and challenging, but it might get easier with the tips and tactics we have provided. For your ease, there are a number of accounting software from which you can choose the ones that best suit your business. Furthermore, you can always look for help regarding this from accountants in Milton Keynes, such as us.

Accounting does not make corporate earnings or balance sheets more volatile. Accounting just increases the transparency of volatility in earnings.”

– Diane Garnick

Looking for a new accountant?

If you looking for some assistance with your accounting services, we’d love to hear from you. Call our friendly team now on 01604 330129.

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