Running a small business is a lot of work. There are orders to take, inventory to gather, billings to send out, and that is all before you get to do the actual work. The hustle and bustle of keeping things going every day can seem overwhelming.
Moving into the realm of accounting is a big step that sometimes gets pushed back for matters that seem more pressing. Sometimes we ignore accounting because it is a big task that we’re unsure about. Hiring a professional accountant gets through the process much faster. Whatever the reasons, accounting is an essential process of businesses, big and small, and must be attended to eventually.
It doesn’t have to be difficult, though. There are some key pieces to accounting that need to be tracked and taken care of, but with these tips, you should be on your way in no time.
Record Income Carefully
Income is the most exciting part of accounting by far. Watching money come into your business creates a feeling of pride in the success of your work. It is not always easy to accurately track income, however.
By providing invoices to your customers, you are creating a nice paper trail for incoming funds. This step makes sure you can look back to what you’ve billed at the very least. Tracking when invoices are paid is important too, as all too often the money goes uncollected.
On top of payments from customers, there are more forms of income than you’d initially expect. Inflows from financing activities are also considered income as far as the IRS is concerned. When you keep timely and accurate records of these transactions, you save yourself a lot of time hunting paperwork come tax time.
Track Business Expenses
As with income, expenses are an important piece to every business. Leveraging the money you spend to keep your business going, you can save yourself from having to pay large taxes. Many business expenses are tax-deductible, but accurate records and proof of expense are required to get these allowances.
A good way to keep track of your business expenses is to have separate business and personal accounts. This makes sure that the things you buy for yourself don’t get confused with office items and vice versa. Now that there are superstores, it is also important to keep receipts or descriptions of the items purchased for later breakdowns.
Though separate bank accounts are sufficient, if you utilize credit card accounts for your spending, you’ll not only have a record of dollars spent through manual data entry and where, but you’ll be able to earn rewards for the spending you have already planned. Be sure to pay off balances monthly so you do not accrue interest.
Budget for Big Spends
Nobody likes to be blindsided by a large expense. It throws off our plans and makes it difficult to make ends meet. Luckily in business, it is frequently easier to plan for these expenditures with a little prep.
Take advantage of past years’ experience to build an estimated flow of the coming year. Using forecasting techniques will prepare you for the standard expenses in your market, cutting down on surprises. Even a simple forecast that grows in complexity over time will help keep your cash flow in a healthy zone.
Knowing what you are working with is essential no matter what type of business you run. Without keeping financial data, it is hard to know if your business is self-sustaining, losing money, or about to break into the big leagues. Financials don’t have to be difficult to be useful.
A balance sheet is separated into two sections, assets and liabilities plus equity. These two pieces should be equal to each other. This financial statement shows your business’s net worth at a given point in time.
In a small business, there won’t be a lot going on in this document, but it is still useful. You’ll be able to easily view if your assets are tied up in unpaid accounts or if you have a large number of payables that need taken care of. The balance sheet is also handy when comparing the performance of your company between two periods.
An Income Statement is meat of what your business is doing. It also has sections, typically revenue, cost of goods sold, and expenses. Rather than showing a specific point in time, this document shows how your business is performing over a specified period.
Using an income statement, you can see if your business is making a profit in any given period. You can even length the period out to explore an entire year of transactions. This piece of your financial data is extremely useful when you’re filing your taxes because of the detailed revenue and expense sections.
Ask for Help when Needed
When you put so much energy into a small business, it is sometimes hard to let go of the reigns and have someone peak under the hood. There are times that it is good to outsource work, and accounting can definitely be one of them. A full-time accountant is not always necessary, sometimes just getting some questions answered or financials designed is enough.
Don’t hesitate to reach out for help as needed. There are professionals and software options that can assist in big and small accounting affairs.
You probably didn’t get into the small business world for the love of accounting, but it needs to be done all the same. By keeping accurate records of your income and expenses, and keeping those items separated from your personal matters, you’re well on your way to well-kept books.
Play around with forecasting and creating financial statements. These will make your life easier and your business better in the long run. Just don’t forget to ask for help when you need it.