Basic concepts of small business accounting
Accounting is not the most fun part of managing your small business, but it is a very important part to keep it in blue. That is why it is important to know and apply the basic concepts of small business accounting.
Accounting, specifically, is a substantial part of owning a business. Whether you are just starting out or a veteran business owner, the efficiency and reliability of your accounting can play an important role in the overall success of your business. From helping you plan for the unexpected to being prepared for tax time, the basic principles of accounting can be very helpful.
While accounting for small businesses can be complex, here are some tips and practices that can help you stay prepared and keep your finances in order:
Anticipate short and long-term expenses
You may not be able to see the future, but there are some unexpected expenses that will not be included in your planning and accounting. You can not determine future income, but you can predict it by reviewing previous income cycles and tax returns to help you have an idea of what you may owe. In addition, you will want to review the income regularly (monthly or quarterly, for example) and calculate the taxes owed.
Another excellent way to account for long and short-term expenses is to review the history and current status of your business in terms of things like inventory, building maintenance, equipment needs and slow seasons. It’s much easier to pay for things like roof repairs or equipment service when you plan it. The same is true for balancing inventory and cash flow during periods when the business may be slower than normal.
Configure and use specific business accounts
It is tempting, especially if you are a new owner of a small business, to use your personal accounts for some expenses. However, unless it is meticulously tracked, this can lead to problems in the future.
By setting up (and using) checking, savings, and company-specific credit cards, you can directly view the statements to help you record and reconcile your books on a regular basis.
If you are just getting started, be sure to open accounts that will be used specifically for transactions within your business. Not only will this help you stay organized, but you can also establish credit for your new business and protect your personal credit from potential losses.
Save receipts and track expenses
Accounting is a one-year event, which means that you will need to track your expenses and other transactions during that 365-day period. Sometimes, especially if you are the owner of a new business, you may not know what receipts you must keep or what expenses can be deducted at the time of the tax.
Keeping receipts, no matter how small, will help you control your expenses and help your accountant or bookkeeper get a clear, concise picture at the end of the year.
Track and analyze these expense receipts, preferably using an application made specifically for companies, it will also allow you to understand labor costs or costs associated with specific clients or projects.
Designate a file or folder on your computer to keep all your receipts scanned and uploaded. Better yet, save that file or folder in some kind of online storage program (Google Docs, Dropbox, etc.) to make sure you are safe from technical problems or malfunctions of the computer.
At the end of the year, you may not need all the receipts you have saved, but this is a situation in which it is best to keep it and not need to have access to it.
Monitor accounts payable and receivable
A key part of accounting is to understand and plan your cash flow, or when you will receive or make a payment. Being aware of bills will help you avoid the credit problems associated with overdue or unpaid bills, and keeping up with customers’ bills will allow you to keep track of bills and accurately estimate available cash.
One of the main benefits of solid accounting is to get an idea of where your company is located; Accounts payable and receivable play an important role in this image. You can also observe any flow and ebb in your business or identify areas where you can expand, reduce or need additional attention.
Use an online bookkeeping service
There are many ways to approach accounting. Some of them are not very efficient, while others, such as the use of online bookkeeping services, can help you save money, grow your business and, ultimately, keep your finances in order.
There is a wide variety of online bookkeeping services that range from more practical platforms that put you in the driver’s seat, to services that will provide you with an individual or designated team to manage your finances. Ultimately, the decision should be based on your level of comfort and budget.
These are just some of the key things that are important to improve your business organization in general. By practicing this and becoming familiar with the financial side of your business, you can develop your own unique approach to successfully managing your company’s accounting.
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