Do you run a small business, and want to become an accounting wizard? Then you have come to the right place below you’ll find our top suggestions on how to crush your small business accounting. Read on to find out more.
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Make sure you have a grasp of all the key accounting terms.
Some of the most important accounting terms you’ll need when running a small business include:
Turnover
Turnover relates to the amount of money your small business is bringing in overall. It does not include any expenses or overheads.
Expenses and overheads
These are the costs that it takes to run your business. Your expenses and overheads will be different depending on the type of business you run. For example, if you run a cake-decorating business your expenses might look like this:
- Cake ingredients
- Decoration supplies
- Tools
- Labor
- Bakery premises cost
- Packaging
- Advertising and marketing
However, if you run a business where you primarily offer a service rather than a product such as life coaching you will have fewer physical costs but increased costs for specialized tools, licenses, and certifications.
Cash flow
Just like the flow of a river, your small business’s cash flow is an important thing to keep an eye on. This is because a positive cash flow means you have more money coming in than going out, and this is a good thing because you won’t need to worry that you can’t pay your bills.
A negative cash flow on the other hand is bad news because it means you are spending more than you are making. This can be a problem because, over a sustained period, it means you are draining your accounts and can be vulnerable to debt and bankruptcy.
Profit
Profit is the amount of money your small business makes once everything else like overhead and expenses is deducted. It’s what you are left with once you have paid out for all the things you need to run your business successfully.
Keep track of your expenses.
Next, to crush your small business accounting you have to keep track of your spending and expenses. This does not mean that you hoard paper receipts in a grocery bag under the table all year, only to go through them with a magnifying glass and fine toothcomb come tax time.
Instead, it’s important to have a proper system in place to record expenses as they happen and match scanned receipts so you can easily show any evidence if you are audited.
Use a bookkeeping routine.
If you want to stay on top of your accounts at all times as a small business you will need to have a bookkeeping routine that splits all your accounting tasks down into the things you need to do and when you need to do them.
Every week you will need to keep track of your expenses as mentioned above, as well as keeping track of incomings, and other costs and overheads.
Every month you will need to make sure you match up invoices and receipts with payments to make sure any errors are caught, and that any outstanding payments can be chased.
On a yearly, or seasonal basis, you will need to keep track of your small business profits, and expenses, as well as make sure your taxes are properly prepared and submitted on time. The good news is that there are things like NetSuite accounting services that can help you with your bookkeeping, and many other aspects of your accounting. Indeed, such tools can be ideal not only for dealing with your accounts payable and receivable, but reconciliations, expenses, and much more.
Decide how you will take your pay.
Don’t forget that as a small business owner, you too will need to draw a salary from the business. Of course, this will impact your profits, and you will need to work out a formal way of paying yourself so you can keep track of it, and make everything correct for tax purposes.
Decide how you will pay your employees.
Once you have established how you will pay yourself, you will also need to work out how you will pay your staff. Most small businesses do this by setting up a payroll procedure. This is a system that works out how much each person is owed in wages or salary each month and then deposits this automatically in their account at the agreed time whether this is weekly, bi-weekly, or monthly.
Other things that you will need to consider when setting up a payroll system include any additional benefits you will be giving to employees, and putting aside the money to cover employees’ taxes.
Separate your business and personal accounts.
When running a small business it can be tempting to run everything through the same account, your one. However, there are some major disadvantages to doing this. The first is that it will make things harder come tax time because you will first have to separate everything into business and personal and then go through each one.
Additionally, using your account can give the wrong impression to your customers. Indeed, they might see you as less than professional when you don’t have a business account they can pay into when they buy a product or service.
Last of all, not having a business account can make it harder for banks and other loan agents to see the value of your company. This means it can be a lot trickier to get a loan when you need one for business purposes.
Stay on top of your taxes.
While we are on the subject of tax, getting your returns and payments right as a small business is crucial. Unfortunately, tax can be taxing, as well as confusing and at times a bit frustrating, especially if you leave it all until the very last minute to submit and pay.
The good news is there are some strategies you can use to make tax time for your small business go a little smoother. One such tactic is to do the things above such as keeping your accounts separate, matching your expenses and recipes, and putting money aside for tax throughout the year.
It’s also a very good idea to be as punctual with your tax returns as possible. This means making sure you know when they are and blocking out some time well before this date to complete the work of preparing and completing your tax forms.