Owning a small business is no easy task, especially when it comes to the finances and accounting.
Even great businesses can struggle if proper accounting steps are not taken.
Here are 5 accounting steps to set a small business up for success.
1. Record your expenses
It is extremely important to keep track of all of a small business’ expenses.
This will not only help track the business’ spending, but it is also crucial in order to claim certain tax deductions.
Keep track of receipts, travel expenses, bank statements, credit cards, tax returns, W2 forms, 1099 forms, and any other record of spending.
2. Stay organized
It’s not hard to see that keeping track of all of these forms will result in a lot of paper, documents, and records, which can result in clutter and confusion.
But there’s no point of keeping all of these documents if they aren’t properly organized and easy to sort through when needed.
Keep your documents neatly filed and organized in a specific area, whether that’s in a certain office of the business, scanned and stored digitally, or online.
3. Understand taxes (before they’re due!)
All of these records will come in handy when tax season rolls around.
Without these records, even a professional accountant would have a hard time helping to file.
It is also important to understand what taxes different small businesses will owe, as it varies depending on the type of organization.
Is the owner self-employed? The head of an LLC? How much do they earn? Or is the business a corporation? How much does the company earn?
It’s important to know the answers to these questions, as they will affect how the business will be taxed.
4. Separate the business from the personal
Many small businesses begin with one person’s personal idea and passion.
But as they start the business, it is important to separate their personal checking account from the business’.
This allows for a clear understanding of what is a business expense versus a personal expense, which was mentioned earlier to be important for taxes and money management.
Separating the accounts will save time and money in the long run.
When opening the business account, it is important to carefully consider which bank to go to: What fees might they charge? What type of account is best for the business? Is there a minimum balance?
5. Hire a professional
A lot of this can seem overwhelming and confusing. That’s why it can be helpful to hire a professional accountant.
A Chartered Professional Accountant (CPA) or a small business accountant with another similar certification can help with a myriad of things to keep your outfit running:
- Cash and expense management
- Implementation of accounting organization or software
- Provide guidance and advice
- Help explain financial reports or statements.
Accounting is a crucial part of running a small business, no matter what type of business it is.
Continuously looking to improve the accounting of a small business and following these 5 accounting steps can help a small business be successful and organized.