Accounting for Small Businesses
Small businesses are not only challenged by limited finances but lack of bookkeeping experience. Unless management has experience in accounting, it’s not out of the ordinary to see account managers or even the CEO double as the accountant and struggle to organize finances.
Fortunately, advances in technology have made it easier for the smallest of businesses to keep track of their revenue. But if a business wants to grow, it’s vital that it develops the correct habits for monitoring cash flow.
Here are a few tips and tricks for small business accounting.
Open a separate bank account
Starting out, some entrepreneurs and small business owners may use a single account for both personal and business expenses out of convenience. That might involve using the business card to buy their spouse a present, or pay for certain business expenses out of pocket.
Crossover spending can become a major pain to rectify later on, especially during tax season. Keeping your finances independent will also make it easier to track deductible expenses later on.
Check out Inc.’s guide on choosing a business bank account for a startup.
Monitor your expenses with accounting software
If you want to get your finances in order, start by accurately recording every expense your business makes. Every transaction should be recorded, whether it’s a networking lunch, business trip, or a new software subscription.
Quickbooks has become a favorite of many companies for its depth and design. The software is user-friendly and offers support for payroll and other add-ons. The only catch is it doesn’t have dedicated project tracking, but for small businesses, it’s more than enough to get the job done.
Organize your taxes early
No matter the size or industry, every business is subject to some tax regulation. If you work with customers overseas, you may have to deal with international customs. If you sell a product in a retail store, you’ll have to consider sales tax. And depending on the state you live in, taxes can vary significantly.
Don’t wait around until tax season. Consider consulting an accountant to ensure your business is fully compliant and saves as much money as possible. In particular, keep track of:
- Meals and Entertainment: Meetups for coffee, company picnics, and networking events can all be fully deducted.
- Travel and Business Trips: Hotel expenses, plane fares, and transit fares can be deducted.
- Vehicle expenses: Gas used for a specific car trip can be expensed.
- Home Office: If you work from home, depending on the size and space, you may be eligible to partially expense your rent as an office cost.
For a more in-depth guide to business taxes, check out this page from the IRS.
Keep your receipts
While this technically falls under tracking expenses, we believe it deserves a point of its own. If ever your business pays for anything, make sure to get a copy of the receipt. For transactions of $75 or less, it’s not necessary, but receipts help make a case for any deductions you plan on making later on. Some people tend to take advantage of the expense law but have no evidence to back their case.
Schedule time to do finances
Block off a time in your calendar every week (the earlier the better) to adhere to your company’s accounting needs. In Google Calendar, you can set an event that will automatically alert you ten minutes before it starts. Accounting tends to be one of the duties that entrepreneurs put off until the last minute. The sooner you get it out the way, the less stress you’ll feel.
Use the 3 golden rules of accounting
When it comes to business accounting, understanding the difference between debits and credits can become a chore. The three golden rules are applied to three different types of accounts:
- Personal accounts refer to individual people that give to or receive from the business. This can apply to investors (givers) and employees (receivers). Transactions by givers are counted as credit, while something taken away is debited.
- Real accounts refer to a business’s property, such as land, office space, furniture, and other physical assets. In these cases, debit the account of the property that comes in, and credit what goes out.
- Nominal accounts refer to accounts that track income and expenses. In this scenario, expenses and losses should be debited, while, profits should be credited.
These rules should help make it easier to track the balance of your business, without feeling overwhelmed.
Keeping the books balanced
Small business accounting isn’t always easy. With so many rules to follow and so few people to assist you, the simplest bookkeeping can feel fruitless and tiring.
Regardless, it’s important to remain consistent and disciplined in your accounting duties. Money influences almost every business decision. As you learn how the business uses the money, you can make better judgments on which initiatives generate money and which
Check out Level Office’s previous blog post on managing cash flow.
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