60% of small business owners feel that they aren’t knowledgeable when it comes to accounting. Are you part of that 60%?
It’s completely understandable. Your niche and expertise are in your industry, in running your business — not accounting. But, unfortunately, managing your books and finances is a vital part of a successful business.
So, if you’re interested in knowing some crucial accounting tips, then keep reading for a comprehensive guide.
1. Keep Your Business and Personal Expenses Separate
If you haven’t already got a business bank account, it’s time to get one. If you don’t have separate accounts, it makes it difficult to track and substantiate your business expenses. This means that you won’t be able to benefit from tax deductions.
Having a business account also offers personal liability protection by keeping everything separate.
2. Create a Detailed Budget
A vital part of accounting strategies for your business includes developing detailed records of all of your expenses as well as the capital that you’re working with.
If you can put your budget down on paper, you can analyze it thoroughly and look for cost-saving opportunities.
3. Keep Tabs on Incoming Cash
You need to keep track of all of the incoming cash. This includes loans, revenue from sales, and other cash infusions. This is vital when it comes to paying your taxes.
If you lose track of your incoming cash flow, you may end up paying less tax than you’re supposed to. This could lead to penalties by the IRS.
4. Buy Bookkeeping Software
If you’re wondering how to do accounting for your small business, then get a little assistance with bookkeeping software. The right software makes tracking income and expenses much easier.
The software will automate the bookkeeping process, which will save you a lot of time and will also avoid human errors. Cloud-based accounting software, in particular, is becoming increasingly popular in the United States.
5. Consider Hiring an Accountant
It’s understandable that as a small business owner you want to try to cut costs and do all the accounting yourself. If you have limited funds and small-scale business transactions, this may be viable in the beginning.
However, as your business starts to grow and expand, it’s a good idea to hire a small business accountant to take care of your business accounting. You can save yourself a lot of time and headaches by handing over your bookkeeping duties to an expert.
6. Choose an Accounting Method
You need to choose the guidelines that will dictate when to report income and expenses. In other words, you need to have a consistent accounting method for tax purposes.
Your two options as a small business are accrual accounting and cash basis accounting. Accrual accounting is generally the preferred method, as it recognizes income and expenses when they are earned and incurred. Additionally, Generally Accepted Accounting Principles (GAAP) require accrual accounting.
7. Plan for Major Investments
If you follow the prior steps and plan a detailed budget and expense and revenue tracking system, you can make smart decisions about the best time to make major investments. You’ll also be able to identify whether you’ll need credit to help cover the costs.
Consider applying for a business credit card to help establish a good credit history for your business so that you can easily secure loans and financing for big expenses.
8. Follow up on Account Receivables
Accounts receivable include the money that a business should receive from its customers in exchange for the goods and services it provides. This tells you plenty of information about customer performance and behavior, as well as long-term payment trends. So, it’s important to keep a close eye on account receivables.
Run an account receivable aging report often so that you can see discrepancies in customer payments. Make sure that you follow up on late and unpaid bills, as this affects your cash flow.
9. Maintain Inventory Records
If merchandise is stolen from you or somehow misplaced, this can seriously throw off your books. You can avoid these errors and prevent theft by keeping detailed inventory records.
Always record the purchase dates and prices, the stock numbers, and the sale date and price. Even if you think a detail is insignificant, note it down regardless. The more details and organization, the better. To make your job easier, use inventory management software.
10. Set Financial Goals
In order to conduct successful financial management in your business, you need to define clear goals. This will help you to stay on track and have a financial plan for the future.
Use your accounting data to create certain metrics for yourself. These may include cash flow or a minimum monthly revenue.
11. Take Advantage of Tax Deductions
This is an important reason why you should consider hiring an accountant — to help you navigate the tax process and make the most of tax deductions. Filing your federal income tax returns once a year should be a high priority for your business.
And there are a number of ways that you can reduce the tax bill. Take advantage of deductions such as employee pay and benefits, travel expenses, auto maintenance, and more!
Follow These Accounting Tips for Success
Managing the accounting processes in your business is no easy feat — especially if you’re new to it all. Use these accounting tips to get your finances and books in order. And if you can afford it, outsource accounting duties to the professionals — you won’t regret it.