As a small business owner, do you know that you can make informed financial decisions by consistently following basic accounting practices?
Small business accounting is as simple as keeping accurate records of income and expenses, which go a long way in helping business owners extract key financial information from various transactions. This is vital in effectively managing and monitoring your money, especially in the infant stages of your business.
Below are 7 best accounting practices that can help you make smarter day-to-day financial decisions in your small business in Singapore.
1. Prepare a Business Plan or Budget
At the onset of your small business operation in Singapore, you’ll need to create a robust business plan to assist you in estimating future expenses as well as the amount of revenue or income that needs to be generated for the survival of your business. You’ll also refer to the business plan periodically as your business expands over the succeeding operating years.
A well-documented business plan is essential when you are seeking external funding to boost your capital investment or bring in new business partners. Having one in place will not only determine your future financial needs, but also create an effective strategy for the growth of your small business in Singapore. It is important to note that your business plan is also instrumental in persuading key individuals to work with you in specific projects.
2. Open a Business Bank Account
Opening a business account is one of the most crucial practices that a small business owner must prioritise beforehand. Business bank accounts come with a number of advantages, which include but not limited to:
- Easily tracking and verifying business transactions.
- Separating personal transactions from business transactions.
- Providing the business with option of a line of credit to cover cash gaps.
As a small business owner, you can go the extra mile by opening several types of business accounts, such as a checking account, credit card account, savings account, and merchant services account.
3. Define Your Accounting Period
Defining your accounting period helps you maintain financial records over a specific time period. The three financial statements that small business owners should use to define their accounting period include a balance sheet, a profit and loss statement (P&L), and a cash flow statement.
The P&L statement and the cash flow statement are used to maintain financial records over a specific period, such as a quarterly, half-yearly, or annually. However, the former does not cover transactions that occurred before or after the stated period. This ensures that you can accurately compare performance in different accounting periods. A balance sheet provides an overview of the assets (what you own) and liabilities (what you owe) of your business as of a particular date.
4. Select Your Main Accounting Method
You can select two main accounting methods to use depending on the nature of your small business in Singapore:
- Cash basis accounting – This is the simplest accounting method, which allows you to identify and record revenue or income as soon as your small business receives the cash. In the same way, you can record expenses as soon as you pay your bills. This is done when your invoices are actually paid.
- Accrual basis accounting – Here, you only record revenues or income when earned, and record expenses as soon as you receive the invoice. It is important to note that you can record the revenues in your books irrespective of when they are actually paid and they match the periods that they are earned.
5. Use the Right Accounting Software to Track Expenses
No business, whether small or big, can avoid expenses. In simple terms, no expenses means no operations! As a small business owner, avoid calculating your expenses in your head with the hope that after cramming all the numbers, they’ll stick to your long-term memory. Instead, use a suitable accounting software to keep an updated record of all your business expenses, which makes it effortless to refer to when needed. This means you can save and record your expenses on a daily or weekly basis.
As your small business grows, daily accounting and bookkeeping tasks may become more challenging if you do not implement the use of cloud-based expense technologies or a solid accounting software system, such as QuickBooks). To determine the best and most efficient accounting software for your small business, it is important to assess a number of leading software systems and technologies in Singapore according to their ability to scale with your business in the long term.
6. Automate Payments and Invoicing
Small businesses that thrive on automated payments do so by maximising the use of accounting technology. Prioritise using accounting software to automate invoicing processes by routinely sending out bills as well as follow-up reminders to prevent a pile up of outstanding invoices. You can go the e-Payments and e-Invoicing route to enrol recurring bills on regular customers. This helps you avoid past due bills as well as un-accounted revenue.
In addition, you can draw up a workable schedule for paying bills. This maximizes your cash flow since you’ll be able to pay your vendors early. To ensure steady cash flow, you can also offer discounts to customers who pay early, and even revoke credit terms for those who have bad credit.
7. Outsource Your Tax Filing Services
Filing all required taxes stands out as one of the most challenging accounting aspects for small businesses in Singapore. You’ll need to submit the required financial statements with the annual tax returns at least once every year. To get a better sense of filing taxes and to avoid legal repercussions of failing to do so, you may want to hire an experienced business accountant who can help you benefit from proper tax planning. It is also advisable to create a separate account for your tax liabilities, which will be helpful in remitting all tax payments promptly and effortlessly.
Key Takeaways
- A business plan estimates future expenses and revenue that needs to be generated
- A business bank account easily tracks and verifies business transactions.
- An accounting period helps you maintain financial records over a specific time period.
- A suitable accounting software keeps an updated record of all your business expenses.
- An accounting software automates invoicing processes by routinely sending out bills and follow-up reminders.
- Hire an experienced business accountant to file your taxes and to avoid legal repercussions of failing to do so.
Looking to outsource accounting in Singapore? Contact Tianlong Services at +65 8809 9315 for all your financial needs. Whether handling unaudited financial statements requirements or providing tax planning consultation, you can trust their professionalism and expertise in improving your financial management.