Clint has a small business and draws heavily from his business degree and corporate experience when setting up his accounting system. The process was long and tedious but he’s happy with the result. He can create purchase orders when he needs to buy inventory, produce sales orders when new orders come in, and generate financial reports to know what his profit is.
Large businesses must have a robust accounting system with internal controls. It’s not just necessary but required by law. Clint took this rigorous approach to his accounting system, but he’s not sure it was the correct course of action. After four months of the new system, the bookkeeping is two months behind and purchase and sales orders have not been created after the first month.
Clint feels like he has a better feel for what his numbers are than what his accounting system is showing. Plus, it’s not even up-to-date. The problem Clint faces is that his accounting system is designed to be run by multiple employees—but in his business, he’s the one managing it all.
This problem is usually faced by overzealous business owners with corporate experience and business degrees. I fall into this category. I want a robust accounting system, but for a small business the price is just too steep.
But here’s the thing: small businesses can’t model a big business accounting system. It’s not effective and it wastes time and money. What you must do, as a small business owner, is simplify and optimize your accounting system, and focus on actionable metrics. Here are eight ways to do so:
1. Get rid of purchase and sales orders. Unless you have multiple employees that need authorization to buy and sell, POs and SOs are pointless. If you are the owner, you buy what you need and sell to those willing to buy. You typically charge the customer on delivery so fancy paperwork like sales orders are unnecessary.
2. Don’t track your inventory in your accounting system. If your business has inventory, it’s easier to use a dedicated software designed, industry specific software, or even a generic inventory management system. Your accounting system should just track purchases. Adjustment for the cost of goods sold can be made at year-end by your accountant.
3. Automate and upgrade your invoicing system. If you can’t email invoices from your accounting system and allow clients to pay those invoices online, it’s time to upgrade. Most cloud-based accounting systems have this feature and it’s a must-have for all small businesses.
4. Pay your bills as you receive them. Sure, you lose some “interest earned” if that money stays in your account, but the time gained by not having to manage bills makes up for it. Plus, late fees are much steeper than interest earned—one late fee and you would be better off just paying everything up front. And paying up front also reduces the need to track bills in your accounting system.
5. Avoid any personal expenses paid from business accounts. You shouldn’t use your business as a personal account. Additionally, each of those transactions now must be accounted for. Save yourself the time and trouble by being diligent about which card to swipe.
6. Reimburse business expenses from personal accounts once per month or once per quarter. You don’t need to constantly reimburse yourself for business expenses. Batch all your transactions and handle them once per month (or even better, once per quarter).
7. Set up your payroll so it’s automatic. Not all businesses have steady cash flows, but if you do, automate your payroll so you don’t need to constantly tweak or change it.
8. Get help! There are only a few key parts to an accounting system that small businesses need. The rest just create clutter or disorganization. Find an accountant that specializes in small business, and make sure they have experience in set up and training.
Accounting systems for large enterprises are complex and take teams of accountants to keep them running. As well, all that data compilation takes weeks, if not months, before reports are generated. Small businesses can’t afford the complexity, the teams of accountants, or the reporting delay. Fortunately, with small businesses, there is less data and it can be automated to provide a simple-to-use system that’s useful and easy to understand. Treat your accounting system like any other business function: get rid of what isn’t needed and focus on what brings value to your business.
This article originally appeared on Forbes