Small Business Accounting: Tips
The Bureau of Labor Statistics reports, “20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business. Finally, 70% of small business owners fail in their 10th year in business.” Small businesses are unsuccessful for a variety of reasons, but a major factor is inefficiencies in small business accounting. Whether your small business is just starting, or you are a seasoned veteran, proper management of business finances are a particularly important factor for the survival, success, growth, and longevity of your small business. We have complied a list of Small Business Accounting Tips to help you succeed.
Tips for Small Business Accounting
- Understand Accounting
Know the five basic types of accounts, financial reports, and how to evaluate business performance.
- Keep Personal and Business Finances Separate
To avoid future headaches, open a business account as soon as a business is established as a separate legal entity and an EIN (Employer Identification Number) is received. This personally protects you, the owner, from liability. Opening a business account also allows the company the option of a line of credit to cover cash gaps. Lastly, it helps in the long run when tax season rolls around.
- Choose an Accounting Method
Small businesses can use two methods of accounting: cash or accrual based.
Accrual Method- Revenues and expenses are recognized when the transaction occurs, even if the cash is not in or out of the bank yet. It requires tracking receivables and payables which also means that double entry accounting must be used to record every transaction.
Cash Method- Revenues and expenses are recognized at the time they are actually paid or received. Think of it as in real-time.
- Make Sure Your Records are Up to Date and Accurate
Nothing is worse than rushing around looking for documents right before the tax deadline. Keeping records up to date is also particularly important for a current and clear picture of the company’s financial state.
- Tax Deadlines
Businesses must remember the date to file yearly tax returns and the dates for estimated quarterly tax payments.
Quarterly tax payments consist of two taxes:
-Self-employment tax (Social Security and Medicare)
-Income tax (on profits)
- Keep All of Your Receipts
Save all receipts for any business-related purchase. This is beneficial when filing taxes and claiming business expenses as tax deductions.
Examples of business expenses include but are not limited to: meals and entertainment, home office or rent, travel, vehicle related expenses, advertising, and office supplies.
- Financial Reports
These summarize a businesses financial health and help with future projections and business decisions.
Balance sheet: Summarizes assets, liabilities, and equity at a single period.
Profit and loss (P&L) statement / income statement: Breaks down business revenues, costs, and expenses over a period of time.
Cash flow statement: The statement of cash flow is similar to the P&L, but does not include any non-cash items such as depreciation.
- Outsource Accounting Services & Integrate Technology with the Consultance Accounting
Many organizations benefit from outsourcing the bookkeeping and accounting functions. In today’s fast-paced world, you need a modern financial infrastructure to support your organization’s future. As experts in transforming small and medium-sized businesses using integrated accounting solutions, you can depend on us to identify the right scope of services to fit your needs. Consultance properly manage your accounting operations using our innovative technology platform so you can focus on your core mission and goals.
The professional accountants at Consultance Accounting go above and beyond so businesses in every industry succeed at every level. From start-up and business structuring to expansion and growth, Consultance guides clients every step of the way. The team is made up of highly experienced professionals, with expertise that includes accounting and bookkeeping, compliance and ethics, financial analysis, process and systems re-engineering, risk management, and accounting system optimization.
Consultance Accounting provides a broad offering of accounting services and tools to improve efficiencies and decision-making in a customizable format to meet each client’s specific needs. We are experts in the accounting field and are fully certified in the technology platforms we offer our clients. What makes Consultance different is how we deliver our services. Through our people, processes, and technologies, we have proven our unyielding commitment to exceptional client service and knowledge from industry experts.