Small Business Accounting Tips for an Economic Downturn
In partnership with Bench
You ever watch Shark Tank or Dragon’s Den?
The one thing - one thing - the panel of business titans and investors ask of every entrepreneur is: to know your numbers.
You gotta know your numbers.
And if you have your sights set on growing your business, getting cozy with your financials is the best way to make smart decisions for your company.
On tap in this article are strategies for small businesses from a professional bookkeeper at Bench, and we’ll cover things like:
- What you should be keeping track of financially
- Key things to pay attention to when it comes to your expenses
- Signals that your business is growing and you can hire more staff
- What role can bookkeeping play so that your business can survive a challenging economic climate
OR! Dive into this video that goes into greater depth about these topics, which comes highly recommended for your edu-tainment needs:
How to manage small business finances
There are lots of questions you may ask yourself when it comes to the financial decision making process for your small business.
You can find bookkeeping tips for small businesses and the answers to (some) of your burning questions below.
And if managing the books is feeling out of reach, that’s ok. This is where Bench comes in. They are here for small business owners with an all-in-one bookkeeping, financial insights, tax, and advisory solution without the costly CPA price tag.
What financials should I be keeping track of?
At the foundation, as a small business owner you should be looking at the main items on your income statement: revenues, expenses, profits and losses.
When it comes to your revenue, keep an eye on what sort of regular revenue streams you’re getting; are there consistent streams of revenue or are there peaks and valleys? Watching trends like this can help you make decisions around cash flow.
How can I make my business expenses more efficient?
It's one thing to say, I want to trim down expenses. But where do you start?
This is where an income statement and tracking expenses comes in. If you’re tracking your expenses you’ll know if you’re getting the full tax deduction, or if there are expenses you want to maximize to contribute to revenue, or if they're expenses to cut.
Here are some things to be mindful of when it comes to your expenses and increasing efficiency:
- Understand which expenses are tax deductible: Some expenses may only be 50% deductible, like business meals unless purchased from a restaurant, in which case they are 100% deductible. Other expenses, if they don’t relate enough to your business, may not be deductible at all.
- Watch out for recurring expenses: If you have monthly or annually recurring expenses, it’s important to continually evaluate them.
- Interest expenses will be harder to trim down in tougher economic times, so consider putting money aside or paying down these types of expenses when your business is in a healthy financial position.
- Visibility and analysis is key. Make sure you’re able to clearly see the numbers, including the expenses. This will help when it comes to making financial decisions for your small business.
How do I know when I can hire more staff?
There are two signals that can indicate you’re ready to hire more employees:
- Your main checking account is growing regularly and you're not translating that into any form of salary or expenses. If this is the case, there may be an opportunity for growth.
- If you’re finding your bookkeeping is getting large and complex, or there isn’t enough time in the day to get all the jobs done, maybe you need to take a step away to make high-level decisions, to manage an office or your employees - these are often indicators that there’s an opportunity for growth. (Then of course, you should look at your numbers as part of the financial decision making process of hiring more employees.)
How can I leverage automation to scale my business profitably?
For most businesses, your largest expense is salary and the taxes that are paid from it.
And while employees are essential, there are certain opportunities to outsource in a way that is cheaper than hiring someone in-house. This is the case if the dollar amount you’re spending on automation produces more time for you to spend on other, revenue producing areas of your business, or if the automation directly contributes to your revenue or saves you money in the end.
Bench Accounting is a great example of this. Bench makes it easy to keep your books up to date, automatically pulling expenses from your bank accounts and generating reliable books at the end of each month.
What can I be doing so my business survives this recession?
- Have a cash reserve: Ideally, you have a cash reserve that you build up over time when your revenues and profits are consistent and healthy.
For example, let’s pretend you want a cash reserve of six months. You can look at your bookkeeping over the last year and know how much you spent on salaries, materials, etc. You’ll know how much it all comes to and can expect something similar in the next year.
This gives you a concrete idea of how much of your profit should be allocated to some form of high interest savings account. It makes it less tempting to eat into that piggy bank on a regular basis when you have it tied concretely to numbers you want to shoot for. This way when tough economic times arise, you can make the appropriate business decision to dip into the reserve funds.
- Cut expenses, but not without understanding which ones are tied to revenue: You may think, for example, that cutting marketing expenses is a good idea, however, consider maximizing the value of your marketing to generate new potential customers.
- Diversify your revenue streams: Many small businesses rely heavily on repeat customers or a loyal customer base, however, this source of revenue gets harder to depend on when everyone is tightening their purse strings.
- Use your bookkeeping: Rely on your bookkeeping to give you numbers to analyze and reevaluate what you’re spending money on and if you’re spending it wisely.
You can also check out more tips to help make your business recession-proof.
The Main Takeaway for Small Business Accounting Tips
In case you needed a nudge to take a look at your financials on a regular basis instead of leaving all your accounting to one day during the hectic rush of tax season - this is it!
As a small business owner, consistently tracking and analyzing your numbers will help you make financial decisions for your business.
For all of your bookkeeping needs, NiceJob is proud to partner with Bench. They provide small business owners with an all-in-one bookkeeping, financial insights, tax, and advisory solution without the costly CPA price tag.
With Bench, clients are paired with a one-on-one bookkeeper to work with throughout the year and into tax season, where they’ll work with your existing CPA or your Bench Tax representative for a seamless tax season.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench and NiceJob assume no liability for actions taken in reliance upon the information contained herein.