When you are a small business owner, there are a lot of things you need to manage by yourself. Leaving your small business accounting practices to professionals can relieve you of loads of paperwork and you can concentrate on other details for growing your business.
Initially, you may get away with keeping your own book of records, but as your company grows and tax time approaches, you can feel a little out of your depth. Incorrect tax filing can incur a lot of fees, not to mention the hassles of correcting the errors.
To avoid these issues, consider hiring a bookkeeper or automating the accounting process by using business software tools.
Here, we have discussed the best practices for accounting for your small business.
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Separate Business and Personal Expenses
One of the very first steps a small business should take is opening a business account. Business bank accounts offer several advantages including:
- You can easily track your business expenses and take advantage of tax deductions.
- Keep business funds separate from personal funds, thus offering personal liability protection.
Opening a business bank account can allow businesses to accept credit and debit card transactions from customers.
Use a Bookkeeping Software and Hire a Bookkeeper
Bookkeeping is a critical component of managing your finances. It is the process of tracking all your incomes and expenses. Proper bookkeeping ensures that the business owners have all the information they need to make sound business decisions. When it comes to accounting, it’s out of the league of small business owners. Hiring a professional bookkeeper dedicated to the task or outsourcing the accounting needs is often a wise decision.
Along with hiring a professional bookkeeper, you should also make use of accounting software to automate the bookkeeping process. Using accounting software can free your calculations from errors, while at the same time making the bookkeeping process much simpler and easier, and less time-consuming than what it would be if done manually. Using software can also make finding all information very easy to complete financial statements.
Develop a Budget
Developing a business plan consists of coming up with revenue projections and a list of anticipated expenditures, and then comparing that budget to actual expenses and revenue. Studies show that 60% of businesses with excellent financial health always build a budget. Successful businesses are also seen to open a separate bank account for payroll.
Keep Accurate Business Records
Accurate recordkeeping is vital for a small business owner. Using accounting software can automate much of the recordkeeping process and store financial records digitally. Thus the amount, time, place, and business purpose gets easy to document and help you when you claim expenses as tax deductions.
Choose an Accounting Method
Small businesses need to pick a set of rules to determine when to report income and expenses. You can choose between accrual accounting and cash basis accounting. Accrual accounting is preferred by many businesses because it’s the requirement for generally accepted accounting principles (GAAP).
On the other hand, cash basis accounting can be more straightforward and easier to manage because, in this type of accounting, revenue is recorded when payment is received. Similarly, expenses are recorded and deducted when the money actually goes out of the company’s account.
Keep the Books Up to Date
Owners and employees do not get a clear picture of the company’s financial state when the books are not up to date. You can always keep your books up to date by automating the receipt and invoice capture.
These are the best practices for small business accounting. As you can see, you’ll do best if you hire professionals to do the bookkeeping. You can also make use of accounting software to automate a major part of your bookkeeping endeavors.
