Welcome to the topic “Top 10 Small Business Accounting Tips”
Most entrepreneurs and founders of small businesses are kept busy virtually constantly. Even though many things vie for your attention, accounting and bookkeeping make up a sizable portion of your workload.
Setting up your back accounting office is crucial whether you are keeping track of your monthly spending, filing your taxes, or paying invoices.
Cash flow is essential for businesses. According to a U.S. Bank study, cash flow problems are the leading cause of closure for nearly 82 percent of small enterprises. According to the same survey, single proprietorship failure rates are much lower.
This blog has compiled our best bookkeeping and accounting advice to help you manage your money, avoid cash flow problems, and expand your small business.
Accounting Tips for Startups and Small Business Owners
It’s crucial that you participate in your company’s financial management as a small business owner. Here are my top ten bookkeeping and accounting suggestions to help you stay organized and comprehend how accounting data may improve the operation of your company.
1. Obtain a salary for yourself.
C and S corporation owners are required to pay themselves fair compensation and process it through the payroll system like any other employee. However, I advise self-employed business owners, independent contractors, and partners also to pay themselves a “salary,” even if, in reality, it would be an owner’s draw and not a component of payroll.
By paying yourself a salary, you promote the idea that your company is a separate legal entity and lessen the need to transgress the Golden Rule by having your company directly cover your expenses. Have the business write you one check each month that you deposit into a different account that is used to protect your personal costs, as opposed to multiple transactions throughout the month when the business pays an expense on your behalf.
2. Understanding the law
Many small business entrepreneurs are skilled at running their companies. They could not, however, be sufficiently knowledgeable about bookkeeping and accounting.
The laws and rules businesses must follow at the local, state, and local levels are also likely unknown to business owners.
For instance, a business needs to:
- keep the latest three accounting periods’ worth of paper receipts (accountants recommend retaining receipts for the previous seven years)
- To claim tax deductions, give paper receipts to governmental entities like the Internal Revenue Service (IRS).
- Record income accurately to prevent underpayment of taxes and IRS fines
3. Keep in mind and adhere to tax deadlines
Speaking of those deceptive tax deadlines, do all it takes to remember that they are drawing near anything, even phone reminders or a countdown. An approaching tax deadline can be very stressful, particularly if you’re hurrying because you forgot, and any errors can take longer to correct.
It’s a relatively straightforward process. Make a note of the tax deadline, set a reminder, and the rest will be simple once you have enough time to complete your tax returns accurately. Your records will be accurate, HMRC won’t be investigating you, and you can put the matter behind you until the subsequent deadline.
4. Payroll outsourcing
An analysis by Wasp Barcode Technologies found that 50% of small businesses outsource their payroll accounting. You should definitely follow my advice. Paycheck distribution, employee tax withholding, and payroll tax return filing are labor-intensive tasks that be readily and affordably outsourced. Even better, many payroll services interface with your accounting program, loading the required accounting entries immediately.
To prevent your payroll provider from accessing your main account if you decide to outsource payroll, I advise opening a separate business checking account designated just for payroll. Furthermore, even if your primary account is overdrawn, you can make sure there is money in the payroll account during difficult circumstances.
5. Purchase accounting software.
Tracking all revenue and expenditures in an organized manner is known as bookkeeping. Financial management is essential in ensuring business owners have the knowledge they need to make wise decisions. Many small business owners are not equipped with the essential accounting skills. It’s frequently a wise investment to hire someone specifically for the job or, for smaller organizations, to outsource the role.
Accounting software streamlines manual bookkeeping procedures that are time-consuming and prone to error. It also makes locating the data needed to prepare financial accounts simpler. Particularly for small businesses, cloud-based accounting software is quite successful, with more than half of the U.S.
6. Pay for your business expenses.
You will occasionally have to utilise personal funds to fulfil company obligations, despite your best efforts. Remember that according to the Golden Rule, these company expenses must be recorded in your business’s bank account. To accomplish this, request that the business provide you with a check to cover the cost you paid with your own money. Your monthly paycheck should not include this.
Self-reimbursement should follow the same guidelines as employee reimbursement. Create a spreadsheet with the expenses, the date, the vendor, and the intended use. Include the receipts. Then your company issues you a check for the specified sum. Despite the inconvenience, doing this will ensure that your bookkeeper deducts the costs from the revenue because they were paid with a check.
7. Keep every receipt you receive.
Not every receipt after a purchase needs to be saved and filed, but you should preserve any that are relevant to your business so you can claim any related business costs. If you are working from home, for instance, you might be eligible to deduct some of your living expenses depending on the kind of business you run.
Anything from stationery to stamps is possible. Keep track of any expenditures or purchases made on behalf of your company and record them in the orderly records we suggested before.
8. A tax accountant might be helpful too.
If you engage a qualified tax accountant, a little time commitment of a few hours per week or month can produce a big return on investment for your business.
A bookkeeper categorizes and records income and spending for specific time periods. Meanwhile, an accountant establishes the organization’s accounting framework and assists with tax preparation.
Small business owners can spend more time courting new clients if an accountant or bookkeeper handles the financial duties; according to Fundera, this could result in small businesses earning up to $320k per year.
9. Monitor certain costly expenses carefully.
Labor expenditures are the most significant expense for most small firms, and inventory is frequently another. Many small firms hire contractors who charge by the hour to lower labor costs. Due to the contractors’ potential need for fewer hours per week and their lack of benefits requirements, this may be less expensive.
Leaders can better budget and discover strategies to manage costs using time-tracking software to determine how much particular jobs cost the company. Businesses can reduce inventory costs by monitoring inventory carrying costs, inventory turnover ratio, amount lost to obsolete inventory, and other essential data.
10. Separate your personal and business finances.
This is a reiteration of the preceding Golden Rule. Unfortunately, it’s one of the laws that’s broken the most. I strongly advise having separate bank and credit card accounts that are used only for work, even if you are self-employed or a freelancer.
Your bookkeeper will have a lot fewer transactions to sort and reconcile if you remove any personal transactions from your business accounts. Moreover, half of the transactions in some small enterprises’ “business” accounts were personal, according to the bookkeeping I did for those companies. Organizing your individual transactions takes time, costs money, and might be inaccurate.
How the Business is Operated Is Where Good Bookkeeping Begins
Most of my bookkeeping and accounting advice focuses on how you run your business rather than the bookkeeping system itself. Good bookkeeping is based on bank and credit card statements rather than a box of invoices and receipts.
Your bank and credit card transactions will be tracked by a bookkeeper, who will also do a reconciliation between your books and bank statements. They verify that this reconciliation has recorded all transactions at the correct amount.
The Bottom Line
Small firms and startups can boost their chances of success by taking steps to set up reliable accounting procedures from the outset. According to studies, a small business’s financial health improves the more frequently it reviews its financial data, which should ultimately contribute to long-term success.
Although most small business owners are not particularly passionate about bookkeeping, they must regularly check these crucial financial metrics to take advantage of growth possibilities and ensure their business is not headed for insolvency.
Also Read: How to Secure Capital for Startup Business
