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Crucial Accounting Tips for Small Business Success

Published on: June 23, 2022

man working on finances while sitting in coffee shop

If you own a small business or you are planning to start one, there are a lot of topics you need to understand. One of the most important is accounting, because you need to carefully track the money coming into and going out of your business. Without clarity in this area, you may find that you do not have all the information you need to keep your business advancing the way you want it to. Here are some of the most significant accounting tips for any small business to create the best opportunity for success.

Determine the Best Accounting Method for Your Small Business Type

Among the first things you'll want to do for your small business is choose which accounting method you'll be using. The cash method and the accrual method are both good options, but once you pick one you need to stick with it. You can't change methods in the middle of an accounting cycle or move back and forth between the two types. Instead, choose one and make sure you follow it fully. Which one? That depends on your particular small business, and the best way to address your accounting issues.

Cash accounting method.

The cash accounting method is the most common one for many small businesses. It's also generally the least complicated and easiest method. Small business accounting doesn't have to be difficult, and if you're going to use the cash method of bookkeeping for small business, you'll be focused on the inflow and outflow of money as it takes place. You'll operate on a calendar year accounting cycle, and debit or credit money specifically when that money changes hands.

Accrual accounting method.

By contrast, the accrual accounting method is slightly more complicated. It requires more careful tracking of expenses and revenue because those transactions aren't recorded when the money changes hands. Instead, the transactions are recorded when they're incurred. When revenue is earned, it's listed, and when expenses are agreed to, they're also listed. But the money for the revenue may not have come into your business yet, and the payment for the expenses may not have left your account.

Create a Budget and Financial Forecast

A small business needs a budget, along with a good financial forecast. Most small businesses are unable to spend without worry, and they may have very little in additional revenue or accumulated profit that can be used for expenses. That's why so many small business tips that deal with accounting or finances talk about a budget. Just like personal financial considerations, small businesses need to be careful. If they plan properly, they can project sales, budget for big costs and make adjustments as needed.

Sales projections.

Sales projections aren't an exact science. They're estimates based on past information. If the small business is very new, it might not even have that past information to look back on. In those cases, the estimates can be far from what actually takes place. Making the best possible projections and being willing to adjust them frequently is very important.

Budget for major expenses.

Small businesses can sometimes have significant expenses. Maybe the business wants to move into a new location, or it's going to expand or purchase new equipment. Budgeting for those expenses is extremely valuable, and anyone who owns a small business will quickly learn that they need to have a savings account that allows for larger expenses, instead of hoping for increased revenue.

Analyze your accounting reports regularly to adjust your budget.

You should regularly look through your accounting reports to see whether your profits are increasing or decreasing. If you find that your account balances are going down instead of up, it's time to adjust your budget. But the same is true if you're ending up with a lot of cash just sitting in the bank. That can be used for improvement, which also requires a budget adjustment.

Track All Your Expenses

Tracking expenses is another one of the small business accounting tips you want to take seriously. When you're handling bookkeeping for small business, you want to make sure you're writing everything down. If money comes in or goes out, it absolutely needs to be tracked. It doesn't take much for the books to end up "off" if you're not keeping proper track. That can cause issues with reconciling accounts and make it difficult to determine the level of money and financial success your small business has achieved. Additionally, certain expenses can be used to offset the income taxes you may owe, so proof of those expenses is necessary and beneficial when it comes to filing your taxes.

Keep all receipts, and don't forget about charitable contributions.

Save all the receipts for expenses you have. Whether you donated money to charity or bought dinner for a client, you absolutely need to make sure you're saving the receipts. That way you can see how much money is really leaving your account, and that will keep your business on track from a budget standpoint. It's much easier to see if you're overspending when you can quickly look and see where your small business' money is actually going.

Separate business and personal expenses.

Among the most important small business tips is keeping business and personal expenses separate from one another. That's not something every small business owner does, but it's something they all should be doing. Why? Because mixing business and personal expenses leads to confusion, missed information and difficulty in separating things out for taxes and other financial matters.

  • If you're using your home or vehicle for business, consider the mileage, gasoline and utility expenses so you can reimburse yourself.
  • Set up a business bank account so you aren't putting your company's money into the same account as your personal funds.

Record Income Accurately

Recording your income accurately is vital for small business accounting. You want to be sure you're understanding how much money is coming into your business. If you don't have a clear picture of that, you may not understand how well your company is doing, or whether you do or don't have money to spend.

Keep track of invoices and receivables.

Keeping track of invoices and receivables is one of the most important small business tips for your developing company. You don't want to lose out on money that should be coming in simply because you forgot something or lost track of an account. With good tracking on your invoices and receivables, you can also reach out to any clients who haven't paid their debt to you yet.

Establish a Payroll System

A payroll system is extremely valuable for anyone who operates a small business. When you have a payroll system, you can handle your bookkeeping for small business needs more easily. That's because you'll be keeping your company's funds and your funds separate. Even if it's just you in the business, paying a salary makes separating finances easier to address.

Set your salary.

Paying yourself first means you can get a clear picture of how much profit your small business is actually bringing in. You want to make sure you're paying yourself a reasonable salary that will cover your bills, but that you're also keeping enough money in your business to pay the bills it creates. Saving for upgrades and advancements is valuable, and a set salary makes that easier, too.

Know and work with payroll laws.

The payroll laws in your area need to be followed correctly. That's true whether you're paying yourself a salary or whether you're paying other employees. You need to be sure you know the payroll laws and that you work with them to stay in compliance. If you're avoiding payroll laws or not following them correctly, that could get you into legal and financial trouble that your small business really wants to avoid.

Plan Ahead for Taxes

Taxes are an inevitable part of operating a small business, and they're also a part of that business that needs to be addressed properly. Small business accounting practices that don't properly handle taxes can cause financial problems and legal trouble in the future.

Know applicable tax laws and deadlines.

The applicable tax laws and deadlines for your state and local taxes matter, as do any federal laws and deadlines that affect your small business. Knowing those laws, keeping track of any changes and making sure you meet deadlines can help your business protect itself and see more success.

Collect appropriate taxes.

Depending on the kind of business you operate, there are some different types of taxes you'll need to collect. Sales taxes and payroll taxes are the two that are most commonly needed. Before you start bookkeeping for your small business, take the time to understand what taxes you'll need to collect.

Other Accounting Tips

Small business accounting doesn't have to be complicated, and the right small business tips can make it easier. In addition to the tips discussed above, here are a few more that can affect your business.

Use accounting software to automate as much as possible.

Accounting may seem intimidating, but it really doesn't have to be. If you use software to automate as much of your small business accounting needs as possible, you can accomplish more and reduce the risk of making mistakes. Software can help ensure you include everything you need and categorize information properly.

Prioritize cash flow management.

The management of your cash flow should definitely be one of your biggest priorities. You need good cash flow to help your small business become and remain successful. If you're not prioritizing its management, you could be missing out on many opportunities to improve the health and longevity of your company.

Store accounting records securely.

A loss of accounting records could be devastating, and one of the biggest small business tips is to make sure those records are being stored securely. Whether that's in printed form, in digital form or both, there are ways to ensure safety and security for your small business' accounting records. Security is important.

Consider outsourcing or hiring a bookkeeper.

Depending on the kind of small business you're operating and how much knowledge you have of bookkeeping methods, you may want to hire a bookkeeper. You don't have to choose someone in-house. You can also outsource the job to better focus your efforts on other areas of your business.

The Bottom Line for Small Business Accounting

The bottom line for small business accounting is that you need to follow a number of rules, tips and laws. Doing that can protect you from financial and legal harm and can also make it easier for you to see where you stand, so you can make important adjustments to keep your business growing. If you're dedicated to accounting for your small business or working as an accountant for others, Husson's accounting degree can help you learn everything you need to know.



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