Accounting Basics for running Small Businesses
Starting a business of your own is a big deal. Generally, start-ups struggle a lot in the marketplace to make their own identity. Passion and hard work is something which will take you to the heights and create a sustainable and profitable business. But is hard work and passion are all you need? Small business owners generally lack the skills of accountancy and it is common as you are not a professional accountant or born to do accounting only. In order to turn your business from the small one to expand one, all you need to know is the accounting basics.
You cannot do everything which your business demands. From maintaining books to record expenses and payments will cause unnecessary stress.
Here are some ways you can learn Accounting Basics for running Small Businesses:
Importance of bookkeeping
It has been that one of the most unfortunate reasons that small business struggle is when there are miscalculations of expenses and taxes. There can be different reasons for the mismanagement of money like some companies:
- can spend more money which they actually don’t have to,
- may mix tax payments which can create a major tax issue in future,
- may lose out on tax refunds
It is a fact that accurate accounting can make or break your business. One can also refer to the link 10 Accounting Tips for New Small Businesses for better understanding. It is not just important to know accounting basics but it actually becomes a necessity to make big things happen.
How to get started
Most common method of keeping your accounts on point is to start your bookkeeping with accounting services. This is a very basic, very simple recording practice – cash in, cash out. By this, you can record when you get paid for a sale and record when you spend. Record it on the day it happens, when it happens. Most businesses use this type of accounting method as it will not only provide you the accounting help but also provide you with a dedicated bookkeeper.
When to start
As soon as you start your business, you can hire the bookkeeper for the bookkeeping services for business or maintain your books on your own to avoid mistakes from the beginning and reduce the headaches. A full year’s online bookkeeping can be completed by bookkeepers according to your needs in as little as 3 hour time which might take 3 days.
What to Record
“Everything” may be too complicated an answer, but ideally, the more in-depth your records, the better. It is very important to keep track of all incoming and outgoing payments.
- What you sold
- Who you sold it to
- How much money/revenue you collected
- When you received the money
- How much sales tax you collected (if applicable)
In most cases, what you will record is the transaction you made with the customer. These are the incoming payments.
- The taxes you paid
- The employees you paid
- The business expenses (office supplies, inventory, etc.) you paid
- The rent/utilities you paid
As a small business owner, it’s important to keep track of every dollar that goes in and out of your company, including not only what you see on a day-to-day basis but also your monthly expenses. Remember that many of those payments you made may be deductible based on your income or the type of business you own – even coffee with a potential partner or the health insurance you purchased for yourself.
How to Record It
Your organizational methods are going to affect the quality of your bookkeeping. Every day you should be recording every transaction. Most of the small businesses have nothing more than an Excel sheet with some numbers on them or a bank statement that logs their transactions.
Barely have it encompassed every expense, nor does it allow you (and the IRS) to visualize your net income. You do not need to worry about the right accounting software, this will not take as much time as it sounds.
Every dollar you collect should be placed on its own separate line so that you know exactly how much you collected and when. Every dollar you spend, same thing. You’ll want to record where it went (or where it came from) as well, so that you know which payments qualify for tax breaks, how much of each payment you received goes to taxes, and more.
Scanning any paper receipts you have and putting them on the computer to protect them is highly recommended. Every single receipt should be accounted for, whether it’s a receipt for the money you collected or a receipt for the money you spent.
One of the most important tasks in creating a sustainable business is taken care of your bookkeeping. Luckily you do not need to be an experienced accountant in order to be successful at bookkeeping. With the right accounting software, you can easily maintain your business in minutes a day with accurate reporting that will help you manage your finances better.