For many business owners, managing finances is the scariest aspect of owning a business. If you don’t know how to keep your finances in order, you could run into dire financial difficulties.
Fortunately, ace money management skills can be learned, even if you’ve never balanced a checkbook before. Here are a few of the top must-know small business accounting tips you should refer to regularly.
Monitor Labor Cost
- Direct labor refers to the labor costs of the employees directly involved in manufacturing product. The gross wages paid to employees who actively work the production line are the direct labor cost for a manufacturing business. Monitoring direct labor cost can help a company manage profits and the overall cost of production. The direct labor cost is also an important factor in determining the standard cost per product based on how many units are produced in the same period.
- Determine the period for which you want to calculate the direct labor cost. This could be for the last month, the last quarter or any other period
- Identify each of the employees directly involved in the production process during the period in question. This includes all of the employees working the manufacturing line. Create a list of the employees and their hourly rate of pay.
- Calculate how many hours the employees worked during the period. It may be easiest to refer to time cards or payroll history reports for this.
- Multiply each employee’s hours worked by the rate of pay to determine that employee’s gross pay. Add all of the gross pay figures together to obtain the direct labor cost for the period.
Follow Up on Invoices
For most new business owners invoicing is an unfamiliar concept, but it’s necessary to record specific details about various transactions. They also prompt clients to make payments on time. Accurate invoicing can help you keep track of clients who consistently fail to pay within the agreed-upon period and can help you stay organized.
Never add to an invoice after it has been finalized and never create multiple versions of the same invoice. Making changes to an invoice after submitting to a customer will only confuse you, your clients and your accountant. It will also make the accounts receivable process chaotic and inefficient.
Use Accounting Software
Accounting software was once cost-prohibitive for many small businesses, but now you can access robust accounting software for a monthly fee (or even free). Accounting software is increasingly easy to use and provides small business owners with a ton of features and services, including ones for sales tracking, budgeting, inventory management, financial statements, payroll and taxes.
In addition to automating processes and accurately tracking and balancing your books, cloud-based accounting software can often integrate with many of the other business software programs you use. Sharing data across applications can reduce errors and save you the time it would take to manually input data into your accounting software.
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