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Accounting Best Practices for Small Businesses

Naomi Simson’s small business strategy checklist

Having seen more than 400 pitches as a Shark on Shark Tank Australia, Red Balloon founder Naomi Simson knows a thing or two about the make-up of a successful and scalable business. But like so many business leaders across the globe she had to rethink her business strategy when COVID-19 became a global pandemic.

Australia has always been a nation of innovators. The black box flight recorder, Google Maps, WiFi technology and the pacemaker are just a few ingenious Australian inventions that have changed the world.

And since COVID-19 changed the world, this innovative mind-set is more important than ever for the survival of small businesses.

One of the greatest challenges right now is that we have never been in this situation before – there is no playbook. But we can put together strategies to help navigate our businesses through this difficult time and protect the startup ecosystem.

Here is my defensive and offensive strategy checklist for small businesses, because at the end of the day we’re all in this together.

Your defensive strategy checklist

Setting up defensive strategies will help lay the foundations for your business’s long-term survival. Future-proof your business by understanding how you can defend it from potential economic impacts brought about by COVID-19.

1. Get on top of your checkbook

Start by going through every single line item in your balance sheet and decide whether it can be reviewed, pushed out or cut. With this level of attention to detail you might find costs you didn’t know you had – such as hosting fees of unused email accounts.

When Red Balloon’s CFO went through our balance sheet he assigned an owner to each line item, allowing them to be the decision-maker on whether something got cut or reviewed.

2. Be transparent with your employees

According to HR and recruitment firm Randstad, being transparent with your employees during a financial crisis will help build long-term trust in the future. Ensure you're being transparent with your employees and provide them with regular updates on the business, including state of finances and positive impacts of any cost-cuts.

3. Ask yourself what resources you need to scale

The truth is, not all business owners are entrepreneurs. If you’re great with running your business but are not sure how to grow it – especially during these uncertain times – invest in the talent and resources that will get you there. Any investment in the growth of your business is a worthwhile one.

4. Flip your business model if you need to attract customers

If a potential business partner entered the Tank and pitched an inner city pub that also moonlighted as a corner store, I would have said “I’m out”. But we have seen some incredible business pivot success stories come out of this situation. If you need to attract customers in this new world – flip your business model.

The first thing we did at Red Balloon when COVID-19 hit was ask ourselves: “What can we reinvent or reimagine when it comes to experiences?” We came up with a whole range of at-home experiences - which opened us up to a global audience. A whisky tasting in Sydney Harbour can now be done virtually from anywhere in Australia.

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Your offensive strategy checklist

Successful offensive strategies put the customer at the centre. The key is understanding the public conversation and industry changes, and then aligning your messaging. Emphasise the strengths of your business by following these steps

1. Track customer sentiment

Use social media to understand and shift the customer sentiment of your brand before starting any marketing campaign.

What business owners need to understand as we evolve and adapt to a new world, is that our neuro-pathways have changed and what we now accept as a social norm might not be what it once was. There will be some things we will take on as social practices that will benefit the whole of society and need to be applied to the business experience.

2. Make your marketing empathetic

For Mother’s Day this year, Red Balloon decided to go out strong with our messaging and made sure people knew we were there for mothers on their number one day. To do this successfully, our marketing team monitored customer sentiment and kept messaging empathetic, helpful and positive.

3. Communicate your business values and do good

There is not one person that I’ve spoken to that hasn’t mentioned the benefits to the planet from us being in lockdown. We’re seeing green turtles hatch on our beaches in Far-North Queensland! As a business owner, it’s important right now to take your community on a journey of sustainability that aligns with your company’s values. Doing good is no longer a “nice to have” for small business, it’s a must and it’s what customers expect.

If you would like to hear more from Naomi, sign up to her biweekly briefing Handpick.

Learn more about growing your small business by downloading our Small Business Growth Toolkit.

When you make bigger purchases and apply strategic investments, amortization and depreciation come into play as well. These allow you to deduct the cost or value of an asset over a number of years. It’s how many businesses end up cash-flow positive at the end of each calendar year, but owe little in actual taxes due to earlier acquisitions.

Then there’s the question of accrual accounting versus cash basis accounting. In accrual accounting, businesses record revenue at the completion of a project or milestone, and they recognize expenses as they are incurred. While this is the more commonly used method of accounting, a disadvantage is that companies generally end up paying taxes on income they haven’t yet received from customers or vendors.

In cash-basis accounting, revenue and expenses are registered only when invoices are paid. This makes it easier for businesses to manage their tax liability when customers are delinquent on their payments, as companies only get taxed on cash received minus expenses paid. Generally, smaller businesses benefit more from cash-basis accounting while larger companies with millions in sales are more likely to take advantage of accrual accounting.

There are a few best practices every small business owner should follow to remain compliant with tax law, as well as strategies to reduce your taxable business income. Remember to follow these tips:

Keep your invoices and receipts. Between donations, vendor payments, and other purchases, it’s important that you collect and store all your receipts as original documentation.
Correctly classify contractors and employees. The government levies high fees on employers in instances where contractors meet the criteria of a regular employee but are not part of the company’s formal payroll.
Apply depreciation on large purchases. Deduct the value of larger assets over their full use period so you can spread the expense across multiple fiscal years.
Look out for tax credits and strategic deductions. Each year, federal and state governments announce incentives and programs that qualifying small businesses owners can take advantage of to reduce their tax liability.
Collect and pay all applicable sales taxes. Online purchases and software licenses are among the newest categories of products and services that are subject to sales tax. Make sure you charge your customers any required sales taxes so you can remit those fees to the government at a later date.

Overall, bookkeeping can become complicated. That’s why many entrepreneurs opt to use accounting software for small businesses while others enlist support from a licensed Certified Public Accountant (CPA).

Flip your business model if you need to attract customers

To streamline the bookkeeping process and increase record-keeping accuracy, many small business owners use accounting software. The best accounting software for small businesses usually integrates with your CRM platform, payroll system, accounts payable and receivable, bank accounts, credit cards, and more to provide real-time updates on your business’s financial situation.

5 Advantages of Accounting Platforms for Small Businesses

Some companies use manual entry for all their accounting purposes. However, that tends to be labor intensive and leaves room for human error. Accounting tools for small businesses, instead, save owners time by automatically categorizing, consolidating, and dating sales generated, expenses incurred, and cash inflow and outflow.

Time-savings aside, five advantages of small business accounting platforms are:

Automatic sales tax calculations. Fifty states and constantly changing legislation can make it hard to keep track of the different sales tax laws. When you use accounting software, you can reliably collect sales tax for products and services delivered across the country.
Instant reporting. Segment your data in a number of different ways to view costs and revenues during different date periods or by category. This ensures you no longer have to create complicated formulas in spreadsheets, which might not have the most up-to-date information.
Financial forecasting. Use historical data to project upcoming costs and plan for anticipated cash flows. Armed with this information, you can scale your business strategically because you’ll know when you’ll be able to afford each new investment.
Scheduling of payments and invoices. With the right accounting software, you minimize the risk of paying late. Also, use technology to facilitate automatic invoicing so that you charge customers the correct amounts at the end of each billing cycle to collect payment faster.
Monitoring of abnormalities. Some of the best accounting software for small businesses automatically alert users when their costs suddenly increase or revenues take an unexpected dip. This helps owners react immediately to correct the situation.

While even the best accounting software for small businesses can help you improve how you manage your books, there are also benefits of retaining the services of a professional accountant.

Why Some Businesses Hire Accountants

Professional accountants and CPAs understand the best way to structure your company, manage its finances, and maximize your deductions. The accounting services they provide for small businesses are generally designed to save more money in the long term and adhere to all kinds of local and federal tax law.

Although some business owners only seek help from an accountant, many license accounting software and supplement what they don’t know and what technology can’t tell them with professional counsel. Accounting for small businesses can feel daunting for many owners, but once they couple the right software with the right consulting package from a CPA, they can confidently capitalize on every legal opportunity to minimize their tax liability.

In Addition to Software Certified Accountants Help Small Businesses Succeed

Other Ways Companies Handle Accounting

Some owners hire a contract or part-time bookkeeper who specializes in accounting services for small businesses. They help ensure company sales and expenses are properly logged and categorized, since accounting tools alone only improve accuracy but don’t guarantee it. This is a common solution for organizations that aren’t yet ready to hire someone full-time for their in-house accounting needs.

Other entrepreneurs choose to do all the administrative work themselves and then hand off everything they have to an accountant at the end of each year. However, this is not recommended as, by that point, it may be too late to capitalize on any tax credits and strategic deductions for the recently ended fiscal year.

At the very least, small business owners can use basic accounting software until they’ve grown their company enough to justify the investment in more sophisticated accounting tools. That way they can save time, improve accuracy, and increase the likelihood that they spot more opportunities to reduce their tax burden either themselves or with the help of a CPA.

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