5 Essential Steps to Make Accounting System Your Business Partner
As a small business owner, you need to manage different aspects of your business — sales, marketing, lead generation, improving service, paying bills, numerous phone calls, emails, you name it. Before you notice, your days become unpredictable and you end up constantly dealing with operational things. Your receipts are piling up, turning bookkeeping and accounting into those dreary tasks on an endless to-do list.
Good news is that technology has a huge impact on software and tools in accounting industry as well! Getting organised and staying on top of your accounting requirements is easier and less time-consuming than you can imagine.
We would like to highlight 5 essential steps in setting up a system that will help you in expanding your business!
1. Have a second look at your business plan
Start fresh, change environment, take a weekend trip, think about your idea and passion that got you into small business world. What is your vision, strategy and tactics?
Let’s say, your vision is to establish a successful service practice.
Your strategy is to achieve and sustain portfolio of 50 ongoing clients as 80% of total revenue. You wish to have 20% of revenue from ad hoc projects that will expand your network and potentially convert to ongoing client portfolio.
You also made your strategy SMART (Specific, Measurable, Actionable, Realistic and Time-specific).
Great job, you are ready for the next step.
2. Set up accounting software with keeping your goal in mind
Xero accounting software is perfect for small business. Setting it up is straightforward, however we would strongly recommend hiring a bookkeeping/accounting professional to assist you at this stage. Time is the most valuable resource and you should use it to grow your business.
Either way, you should prepare the following for before the setting up phase:
- Legal name of your organization,
- Currency and financial year end,
- Business logo, payment terms and a starting point for your invoice numbering sequence, and
- Business Bank Statements.
These will cover your basic Xero setup.
The first important customization should be your Chart of Accounts.
Export the default Xero Chart of Accounts and review all the accounts. Start with the revenue accounts and create an account for each revenue stream. For example, Sales - Ongoing clients and Sales - Projects. Continue with expenses and add any expense accounts specific to your business/business plan.
The second important customization should be Tracking.
Have a look at your operational plan. We have already mentioned that your goals should be specific, measurable, actionable, realistic and time-specific. Think about the areas of your business you need to measure and set up tracking categories accordingly.
You can have two active tracking categories, up to 100 tracking options for each tracking category.
This way, every transaction will be assigned to appropriate tracking options, resulting in valuable reporting feature.
3. Automate
Now that setting up is done, the next step is to import data. Instead of manual import, use technology to automate this process and get more time for important tasks.
Connect bank feeds
Firstly, add your bank accounts to Xero and connect a bank feed. Transactions will be automatically imported into Xero.
Every statement needs to be accounted for and matched with transactions you have created in Xero. So, let’s automate that as well.
Automate invoice imports into Xero
Xero has an app marketplace where you can find amazing time-saving apps that connect with Xero. EntryRocket is a great solution to automate file imports into Xero. Send your documents via email and the software will process data in 4 steps without human intervention.
There are numerous benefits such as:
- Removing risk of making manual errors,
- Saving time, and
- Have a customized integration that fits your business needs
4. Analyze
It's monthly review time. By now you have set up, customized and imported your data into Xero. The accounts still need to be reconciled, and a bookkeeper can always help or train you how to proceed in case you have decided to do books by yourself.
Run financial statements - the Income Statement (or Profit & Loss), Balance Sheet, and Statement of Cash Flows as these are the core of a financial report.
Profit & Loss will provide information about the revenue, expenses and profit. Filter by tracking categories to get into more details. Review and compare with your business plan and milestones. In the upcoming months, you will also be able to review the revenue / expense trends based on previous months Xero data.
Balance Sheet will provide overview of what is owned (assets), what is owed (liabilities), and what is left over. This is important, as sometimes we only look at Profit & Loss, see the profit is fantastic and we are thrilled with our business performance. However, Balance Sheet could show us that there is more money in receivables (outstanding payments from clients) than in Bank account. If we are aware of this, we can take steps to improve.
Statement of Cash Flows will connect Profit & Loss and Balance Sheet and give more detailed overview of money movement in and out of business.
Do take time and analyze business performance compared to planned or expected.
5. Improve decision-making process
By analyzing financial statements you will gather valuable information to help you make more deliberate decisions. Hidden pain points can be discovered and resolved before the alarm is raised. Having total clarity over financials is advantage, opportunity and relief.
Changing the perception of accounting from administrative work to your business partner will make set up efforts worthwhile. It will help you build better business.
Do take advantage of technology to simplify the process and make it more efficient!