Business Daily Media

Business Marketing


Essential accounting tips for small business owners

  • Written by Andy Richley, Marketing Manager at Khaos Cloud
Andy Richley, Marketing Manager at Khaos Cloud
Andy Richley, Marketing Manager at Khaos Cloud

Accounting is unlikely to be your favourite part of running a business but it is crucial to your survival.


Running out of money is the reason 29% of startups fail, according to a survey run by CB Insights. So, how can you prevent yourself becoming one of them? Make sure you get to grips with some accounting fundamentals as soon as possible. Don’t assume you can simply delegate your accounts to your bookkeeper or accountant. Understanding your finances will help you assess your performance and spot potential problems quickly, so you can act to prevent them.


It shouldn’t be something you pay attention to once in awhile either. You should always be able to answer crucial questions like are you borrowing too much, or is your revenue covering your expenses?


Here are a few key steps you can take to feel in control of your finances and make a success of your business.


Make sure you get to grips with key terminology


It can be daunting to get to grips with all the terminology associated with accounting but you can’t afford not to. Terms like your deductibles, liabilities and accruals should become part of your vocabulary, especially if you want to have a meaningful conversation with your accountant or investors.


Record absolutely everything


Don’t make the mistake of thinking it’s too early to start recording your finances. Record absolutely everything from day one. Keeping a hawk eye on every penny going in and out of your business is fundamental but easy to overlook.


Always keep your business records separate from your personal expenses to give you a clear picture of what’s going on.


Keep on top of compliance requirements


Keeping accurate records of everything you do will help you fulfill your legal obligations, so don’t treat it as optional. HMRC requires you to keep documentation to backup your tax returns for six years. Invoices, receipts and bank statements are just some of the documents you need to keep.


In addition, make sure you keep track of your VAT liabilities, so you don’t inadvertently go over the threshold.


Make sure you have clear accounting policies and procedures in place and that everyone who needs to know these is familiar with them.


Calculate your break even number


This is one of the most fundamental numbers you need to keep an eye on. To begin with, you’ll need to calculate your monthly expenses - taking into account both your variable and fixed costs.


Then you’ll need to work out your gross profit percentage - which is your gross profit divided by your sales and expressed as a percentage. You’ll then need to divide your expenses by your gross profit percentage. To take this one step further, work out how many units you’ll need to sell to break even. Do this by dividing the break even number by the cost per unit. To keep it accurate, you’ll need to recalculate it regularly as your business changes.


Know your burn rate


Your gross burn rate is the amount it takes to operate your business each month. Take away any revenues and you have your net burn rate.


This figure is particularly crucial for startups who may take a while before they earn a profit. It gives a clear idea of how sustainable your business really is. Your investors will also want to know this figure because they will use it to work out if you are worth investing in. They’ll check how it compares to your forecast and how quickly your revenue is growing.


A good rule of thumb is to make sure you always have six months’ worth of operating capital in reserve.


Calculate your customer acquisition cost (CAC)


This the figure you typically need to spend on convincing a customer to buy from you, so it needs to take into account your marketing and sales efforts.


It’s calculated by dividing the total amount you spent on acquisition by the total number of new customers. To put this figure into perspective, you then need to consider the customer’s lifetime value. If the customer gives you repeat business over several years, then the CAC might be worthwhile, compared to if they only make a one-off purchase. Tracking such metrics is a lot easier nowadays, thanks to the fact many businesses are digital.


Embrace the digital age


HMRC anticipates that by 2020 most small businesses will be using apps and software for their record keeping and to report information to them. They are therefore transitioning to a more digital way of working with small businesses. They are already piloting changes in the way they handle taxes with a view to phasing this in from next year.


They recognise that operating finances digitally means you are less prone to making errors, or missing deadlines. Nomos One lease accounting software offers numerous benefits to small business owners. It allows you to automatically keep accurate records in real-time, so you always know where you stand financially.


Using cloud-based accounting software allows you to securely share such information with other parties who may need access to it, like your accountant. If your business still relies on spreadsheets, then you are making your life harder than it needs to be.


The Rise and Rise of Cyber Threats: Why Due Diligence is More Important Than Ever

It’s no surprise that Australia, like many countries, is facing a rise in cyber security threats with the latest Australian Cyber Security Center ...

Business Training

A Closer Look at the Luxurious Tanah Merah New Condo Developments

Tanah Merah New Condo is a luxurious residential development located in the Tanah Merah district of Singapore. This exclusive condominium developmen...


How To Choose The Best Building Inspection Company?

You've found the house of your dreams at long last. The pricing is fair, and the funds are in good standing. Is the property, on the other hand, a...


How to Effectively Use Seasonal Holidays to Boost Your Business’ Profits

Holiday periods can be a goldmine for the small business, if leveraged correctly. Here are four ways in which your small business can utilise seas...

Business Training

6 ways to save electricity while working from home during COVID-19

With many Aussies now working from home due to Government-mandated restrictions, there may be concerns that staying home could be driving up energy ...

Business Training

Keep on Trucking: 7 Different Types of Truck Drivers

Are you thinking of becoming a truck driver, but aren't sure which type to become? Did you know that 8.9 million people in the U.S. have a job in ...

Business Training