SMEs Accounting Tips

Generally, SMEs appear to appreciate the least the need for good accounting system.

One of the reasons frequently cited is that qualified accountants and the elaborate structures which go with them are far too costly; that the costs outstrip the benefits.

SMEs also fear that the greater transparency resulting from good accounting systems will expose them to higher tax liabilities.

The fact is SMEs need good accounting systems probably even more desperately than the bigger organizations due to inherent risks arising from (among other causes);

• Lack of separation of ownership and management
• Blurred lines between family and business relationships
• Existence of informal governance practices
• Impracticability of elaborate framework for controls and reporting e.g. segregation of duties.

To counter these risks SMEs should strive to

• Separate the business assets from own assets particularly so the business cash
• Operate a separate business bank account.
• Always bank cash takings and whenever possible settle all bills by cheque. This shifts some of the accounting responsibilities to the bank.
• Where major bills have to be paid or purchases made for cash, draw exact cash from the bank for the particular purpose.
• Otherwise to operate a petty cash system to meet daily expenses. Every coin taken from cash box to be accounted for and receipts filed ASAP latest by the next business working day
• Account for all inputs i.e. investments into the business
• As much as possible, assign a cost to all resources put into the business including own time, that of spouse and other family members, rent for part of home used for business, maintenance and fuel for personal motor vehicle used for business etc.
• Account for all drawings, whether cash or in kind
• Put in place a formal structure if only to clarify custodial responsibilities for the organizations assets for instance and most importantly cash.

It is vital that SMEs recognize accounting as their invaluable management tool. It is essential for safeguarding of the organization’s asset, and for ensuring their efficiency and effectiveness in utilizing resources.

In turn, this enhances the SMEs’ competitive edge in order to survive and to compete with the large corporates who have more going for them in terms of economies of scale, ability to raise capital and to recruit highly qualified staff.