Small and Medium Enterprises (SMEs) account for 99% of all businesses in Singapore, and these companies, founded by hardworking entrepreneurs, are essential to the country's economy. To succeed, it's important for them to focus on running their business effectively.

One of the first steps to success is keeping business finances organized. If you're a small business owner also handling your own accounting, keep reading. This article will explain the role of accounting, why it's important for small businesses, and some key tips to help your company get started on the right track.

What is Accounting?

Accounting, also called bookkeeping, is the process of organizing financial records. In simple terms, it involves checking and recording all business transactions, including expenses and earnings. For small businesses, accounting typically includes three main reports: the balance sheet, income statement, and cash flow statement.

These financial reports are also important for external reporting and tax compliance. In Singapore, the corporate income tax rate is 17% of your company’s chargeable income, but there is a tax exemption scheme for start-ups.

Corporate Income Tax Exemptions for Start-Ups

Why Accounting is Important for Small Businesses

Accounting is vital for every business, especially for small businesses and start-ups. Studies show that 61% of small businesses worldwide struggle with cash flow problems.

By keeping clear financial records, you can manage your money better, which is crucial in the early stages of your business. Good accounting helps you see what’s working and what’s not, allowing you to find new growth opportunities. It also makes payroll and tax filing easier.

However, many small businesses find accounting time-consuming and don’t have the budget for a full accounting department. This is why many owners handle bookkeeping themselves, hire one accountant, or use accounting software - like Xero.

5 Accounting Tips for Small Businesses

• Keep Business Records Separate
  The most basic part of accounting is to carefully track all business expenses in an organized way. It’s important to keep your business and personal finances separate, no matter how small your business is. To make this easier, clearly define your business expenses, which might include:
  • Meals and entertainment
  • Business travel
  • Transport and vehicles
  • Gifts
  • Office supplies

If you work from home, you can also figure out a percentage of your home expenses, like electricity, that you can treat as business costs. Setting up a separate business bank account can help simplify things even more.

• Plan for Big Expenses
  As mentioned earlier, cash flow problems can lead to the failure of small businesses. That's why it's important to monitor large expenses closely. Some of these expenses, like labor costs and office rent, happen regularly, while others come up unexpectedly. Good financial planning can help your business save money. Always plan for major expenses in advance. There are two main accounting methods: cash-based and accrual-based. Cash accounting is better for predicting cash flow, while accrual accounting provides a clearer picture of your business's performance by showing when expenses and profits actually happen.
  
• Don’t Forget About Taxes (and Legal Requirements)
  Taxes are a legal requirement, so it's important for small business owners to understand the tax rules. Besides income taxes, if you have an office, your business may also need to pay property taxes. Tax season can be very busy, and you don’t want to miss any deadlines! Additionally, be aware of any laws and regulations related to your business to avoid penalties. Not only can the financial cost be high, but legal issues can seriously damage your brand’s reputation.
  
• Update your books regularly
  A great tip for keeping your accounting organized is to update your financial statements regularly. While it might feel like a chore, you'll appreciate it later. Having organized and accurate records of your business's financial transactions makes it much easier to find specific information and analyze your finances when needed. Updated financial reports also allow you to quickly see your company's financial health at any time.
  
• Use Digital Tools Like Accounting Software
  By now, it’s clear that accounting can be a big job for any company, whether large or small. If you don’t have a full team of accountants to handle these tasks, don’t worry— there’s an easy solution. Small business owners can automate many accounting tasks by using accounting software or services. These options are usually affordable compared to hiring more staff and are easy to set up.

What’s the difference between accounting and bookkeeping?

Bookkeeping is about recording and organizing financial information, while accounting involves interpreting and presenting this information to people involved in the business.
Read more: Difference between Accounting and Bookkeeping in Singapore

What's next?

When it comes to online accounting, choosing a reliable provider like Clooud Consulting is essential for your business. Our expert team understands accounting rules and standards, ensuring your financial records and reports are accurate and compliant. We help reduce errors and make sure all tax laws are followed.

Make accounting easier with Xero, our cloud accounting solution. Xero connects directly to your bank and automatically imports transactions every day. You can quickly match and digitize bills and receipts by emailing or scanning them. The Xero dashboard provides real- time financial data and insights into cash flow, helping you make better business decisions faster.
Save time and money by outsourcing your accounting to us, so you can focus on growing your business. Contact us now to learn more!