- Separate bank account
To open a separate business account right from day one of your business so it is easier to track exclusive business incomes & payments and account for them easily. It will also help to maintain clean business history & will have clear bifurcation of business and personal income and expenditure.
- Track your bank statement
Spend some time on a daily basis to download your bank statement in excel and mention remarks against each entry and divide the nature of transactions under major heads like Capital Purchase, Food, Travel etc. which clarifies the nature of transactions. This on a daily basis will permanently imbibe financial discipline.
- Maintenance of documents
It is very important to maintain documents that relates to business, be it invoices -sale or purchases, or any paper received for smaller expenses, that would be helpful in clearing your small differences and shall be utilised to balance accounts, to determine liabilities or to claim any amounts.
- Noting of Pre-incorporation expenses
This is when you start your business and every penny matters. The amount spent on setting up your business also forms part of your business profit/loss statement and is eligible for tax deduction subject to relevant laws, so keep a track of all the expenses you incur in setting up the business.
- Accrual and Cash accounting
All expenses incurred during the year need to be recorded in that year’s profit/loss statement. This could be different from the actual money earned during the year since income could also mean income where payment is yet to be received or income received in advance. The same logic for expenses too!
- Treatment of Income received in advance
If your business model is to receive money upfront and provide services over a period of time maintain a database to track the period over which the money received today needs to be recognised and record it in your books accordingly. It is to note that money received in advance for services yet to be rendered, is a liability not an income!
- Treatment of Prepaid expenses
Just like incomes received in advance, there could be expenses where payment is made upfront for a certain period of time (e.g. subscriptions). It is important to maintain a record of all such expenses to know the period over which they need to be recognised. Please note that, money paid in advance for services yet to be received, is an asset not an expense.
- Seek professional assistance!
As the business grows, the accounting load increases and it may be difficult sometimes to analyse the level of expense and incomes and their treatment. Also, when the business grows, as a business owner it is important to focus on the core of your business so it would reach heights and it is always better to assign the jobs so they are well maintained. Hire a professional accountant who can take care of your accounts and let the creative you focus on doing what you do best!