Advanced Accounting Techniques for Growing SMBs

Businesses must use sophisticated bookkeeping and accounting practices to maintain their competitive edge and achieve financial success in today's fast-shifting business environment.

As we go closer to 2024, organizations should consider implementing several novel and cutting-edge accounting techniques into their financial strategy.

This post will highlight 10 innovative ways of bookkeeping and accounting that businesses ought to implement in 2024.

Separate Personal And Business Expenses

Creating a business bank account is one of the initial actions a small business should take. This can be accomplished once the business has obtained its Employer Identification Number, also known as an EIN (sole proprietors can use their social security numbers). Compared to personal bank accounts, business bank accounts enjoy several benefits, including:

• Keeping track of and providing evidence for business costs to take advantage of tax benefits is simplified.
• Protecting against personal liability by separating personal and business monetary resources.
• Allowing the company to use a line of credit to cover any cash shortfalls.

Make a Detailed Budget

You need to keep careful records of your business expenses and the type of finance you are working with. You might be astonished to learn that a significant number of proprietors of small businesses bootstrap this process without first documenting everything in writing.?

As soon as you have your budget written down, you should immediately begin going through the details and searching for ways to reduce costs in areas such as record keeping, payroll, or sales operations.

Hire a Good Accounting Team

You should have a knowledgeable team to make the most of the technologies you are installing if you introduce superior technologies. Learn how to train your staff.?

Ensure that they are familiar with all of the features and functionalities of the cloud accounting software that they have selected. Resourcefulness, wisdom, and vigilance are qualities that are necessary for the individuals who are working on your crucial company data. Without a strong team behind it, no company has ever been able to achieve enormous success.

Cash Flow Forecasting

This technique involves projecting future cash inflows and outflows, allowing SMBs to anticipate financial fluctuations. By forecasting cash positions, businesses can proactively manage working capital, plan investments, and navigate potential liquidity challenges. It enables strategic decision-making, ensuring resources are allocated efficiently and helping SMBs remain agile in responding to market dynamics.

Plan for Major Investments

By consistently tracking expenses and revenue, the business can identify the best time for large investments and establish the credit it may need to cover the cost. Business credit cards can help an organization establish a credit history so it has a better chance at qualifying for financing (and optimal financing terms), including lines of credit and loans, when it needs more capital.?

Risk Management through Derivatives

Derivatives like futures or options are effective risk management tools for SMBs. Businesses can use these instruments to mitigate exposure to volatile factors such as interest rates, currencies, or commodities. This technique safeguards against unforeseen market fluctuations, safeguarding financial stability and supporting more confident decision-making amidst uncertainties.

Learn How Accounting Software Works

Not many small firms manage their books manually. Accounting software has become increasingly popular because it simplifies data entry, reporting, and analysis. On the other hand, not any software will do the trick properly.?

You must have a comprehensive understanding of the platform, including how to link it to your accounts, set up automated reporting alerts, and classify financial data and other related topics. It is, without a doubt, one of the most significant enhancements you can make to your accounting workflows.

Capital Budgeting

Capital budgeting involves evaluating potential investment opportunities using techniques like Net Present Value (NPV) and Internal Rate of Return (IRR). SMBs leverage these tools to assess the feasibility and profitability of long-term investments. Businesses can allocate resources wisely by considering cash flows, risks, and timelines, ensuring optimal returns, and fostering sustainable growth.

Consolidated Financial Reporting

This is particularly valuable for expanding SMBs with multiple entities, consolidated financial reporting aggregates financial data from various subsidiaries or divisions. This technique provides a holistic view of the organization's performance, aiding in strategic decision-making, detecting inefficiencies, and enhancing transparency for stakeholders and investors.

Lean Accounting

Derived from lean management principles, Lean Accounting streamlines accounting processes by eliminating waste, reducing complexity, and enhancing efficiency. SMBs adopting this approach focus on delivering value-added services while optimizing resources and reducing non-value-added activities. It promotes a leaner, more agile financial function, aligning accounting practices with the overall goal of maximizing value for the business.

Cloud-Based Accounting Systems

Leveraging cloud-based accounting software offers SMBs real-time access to financial data, streamlines processes, enhances team collaboration and ensures data security. These systems provide scalability, flexibility, and cost-effectiveness, enabling SMBs to adapt swiftly to changing business needs.

Environmental Accounting

This technique involves accounting for environmental costs and impacts, reflecting a company's commitment to sustainability. SMBs quantify and report on environmental expenditures, allowing them to make informed decisions to minimize ecological footprints, comply with regulations, and meet the growing demand for eco-friendly practices.

Transfer Pricing Strategies

SMBs engaged in global operations or with inter-company transactions and use transfer pricing strategies to set fair prices for goods or services transferred between different entities within the organization. This technique ensures compliance with tax regulations across jurisdictions while optimizing profitability within the group. Establishing transparent and equitable transfer pricing policies minimizes risks associated with tax audits and fosters smooth cross-border operations for SMBs.

Keep Your Records Up-to-date

Maintaining accurate records is among the most essential duties a small business proprietor must fulfil. A significant portion of the recordkeeping process may be automated using accounting software, and financial records can be stored digitally.?

When you claim expenses as tax deductions, it is simple to establish the amount, time, and location of a transaction and the business purpose of the transaction.

Outsourcing Accounting Services

Businesses may find outsourcing accounting services a viable alternative when lowering expenses and increasing productivity. Businesses can take advantage of the experience of professional accountants and bookkeepers through outsourcing, eliminating the need for extra staff members.

Regular Audits

When you regularly audit your company, you will be able to determine whether or not your plans are producing the desired results. In this way, you can determine what the next step needs to be. Utilizing this method, you will determine whether it is necessary to increase the size of the team, focus on marketing strategies, think about implementing cutting-edge technology, rethink operational procedures, reduce the budget, or work on another area within the company.?

By conducting audits regularly, you can comprehend the requirements, possibilities, dangers, and chances that pertain to your company. As soon as you have this information, you can take steps to enhance future outcomes and increase your company's growth.

It is essential to keep in mind that a company that has a large team and a large infrastructure can fail due to insufficient financial management, but a company that has a small team and a small infrastructure can succeed if it has a strong financial game.

Evaluate Business Performance

Keeping track of income and expenses is the foundation for generating these three essential financial statements.?

The income statement makes it possible for the company to ascertain its profit, and the balance sheet provides a snapshot of the company's financial position at a particular point in time by displaying its assets, liabilities, and shareholders' equity, and the cash flow statement reveals whether or not the company has sufficient money flowing into and out of the business during a specific period, as well as the amount of cash that is still available.?

However, when the cash flow statement is evaluated in conjunction with the balance sheet, it is possible to determine whether or not a company possesses adequate cash to satisfy its existing obligations. Banks and investors require all three statements to be submitted for financing or funding.

Final Words

The following was simply a summary of the various methods by which proprietors of small businesses can improve the efficiency of their accounting and bookkeeping procedures; they are by no means the only options available. If you have the appropriate financial professionals on your side, you will discover that even your existing bookkeeping procedures might be improved with various methods.