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One of the foremost requirements of a sustainable and successful business is financial strength. Financial strength decides how strong a budget can be, how accommodating forecasts can be, and more importantly, how much cash is available to the business readily. Cash flow, not profits, decides the financial strength of a business.
Financial health management can be challenging for small-sized businesses because accounting and bookkeeping—the two functions that form the bedrock of financial management – are time-consuming and attention-intensive. Small-sized businesses may lack the resources needed to ensure timely and thorough bookkeeping. Given the multitasking that small business owners and operators must undertake, they may avoid the due diligence accounting requires in order to pursue other activities vital to business building.
Here are some ways small businesses can ensure they don’t overlook their own business accounting and bookkeeping while carrying out solutions and deliverables for clients.
Tracking expenses is important and needs regular and close monitoring.
Why do you need to track expenses? Data and information on expenses help create financial statements, determine tax obligations, and track the financial outflow of the business against income. Receipts for meal expenses, traveling and entertaining business clients, and commuting expenses help small business owners save tax payments. But these need thorough documenting.
For a small business owner also doubling up as its accountant and bookkeeper, it can be easier to put off recording transactions to the end of every work day. Thus, what began as a few missed transactions can quickly build up into a higher volume of expenses missing details.
Determining Tax Obligations Accurately
Business structures, number of employees, and expenses incurred by the business—all can be accounted for and leveraged when determining tax obligations for a small business. Tax relief can also be obtained by noting and providing proof of corporate gifting, home-office expenses, child care or dependent care relief, etc.
Gaining Clarity on Additional Expenses
When determining tax obligations, small businesses may forget to factor in additional expenses, which can help reduce tax payments. These can include import duties, sales taxes, or payments made for third-party applications, such as payment gateways.
Unfortunately, tax obligations can be enveloped in complications and legal nuances. Determining business payment obligations on these can prove to be immensely time-consuming and mean deviating from other business-related work, such as pursuing new business interests or new revenue-generating channels. Not adhering to tax obligations can also attract penalties and threaten business sustainability.
Track Gross Margins
For small businesses especially, tracking the gross margin is important because it reflects the money remaining after all production costs are deducted from income. To calculate gross margin, subtract the cost of production or goods sold from the total income or revenue generated by selling the product or service.
Action Item: Leveraging Outsourcing
Outsourcing resolves challenges at multiple levels:
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