Small Business Accounting
So You Own Your Own Business, Congratulations! Starting your own business is the life-blood of the American Dream! Finding a problem to solve or a niche to fill for a profit can be the most transformational activity in which a person can participate. Add to that the ability to determine your future, and you see all the awesome reasons to start your own business.
Its not easy… One of the first things you’ll want to decide is how you will track your finances. Thank you to Kent Berhard for putting this shortlist together that I will work from and use as a basis for comment.
1. Get Help.
You may be an expert in your field, but a professional CPA or bookkeeper will help immensely. Plus, professionals like us who have worked with many small businesses can be great advisers and consultants.
2. Cash or Accrual
There are two methods of accounting: cash and accrual. Without getting too detailed, accrual is better for long term planning but complicated. Cash accounting is straightforward and better for cash flow. Having a professional, like us, on your team (see the first point) is very important for this very important discussion.
3. Expense tracking is vital.
According to the SBA, you should include the following line items on your spreadsheet or accounting records: supplier/biller’s name, account number, expense type, date invoice was received and amount owed. In addition, it’s important to keep all receipts, credit card statements and incoming bills in your accounting system to ensure you’re properly managing cash flow. At first, this can be easy, but a professional can help you streamline this process as your business grows.
4. Record Keeping Rocks.
The IRS recommends using a journal to record each transaction and a ledger containing the totals from the journal, which you should organize into different accounts. This journal includes daily and monthly cash receipts, check disbursements journal, business checkbook, depreciation worksheet and employee compensation records.
5. Keep business… business.
Don’t mingle personal bookkeeping with business! Keeping your finances separate will make cash flow, records for tax filing, and forecasting information clear and easy to access. You will need this information when your business grows and you want to get a loan or when it comes time to do your taxes.
6. Monthly Reviews.
Make time for monthly reviews by you and/or your accountant. Track accounts payable and receivable, check invoices and determine if you have any loose ends to tie up going into the new month. The National Federation of Independent Businesses (NFIB) recommends you should balance your books at least once a month.
7. Limit accounts receivable.
No company intends to adopt weak accounts receivable policies, but unfortunately, such policies happen frequently. And the cost of such failures can be high. Some strategies to streamline accounts receivable are: take delivery upon payment of your services, setting clear and consistent credit policies, requiring a portion of payment upfront and making sure your billing is accurate. The accounting firm Deloitte suggests applying payments to the proper invoice the day they’re received.
8. Automation is your friend.
Software programs, such as like QuickBooks Online and Gusto, can be major time savers by automating some of those processes for you.
9. Backup financial records FREQUENTLY.
It is crucial to back the information up to protect against obvious physical threats, but also against cyberattacks, such as ransomware. We all say we will get better at backing up information…but when you start a business, you have to stay up on any potential loss of data.
I hope this quick primer helps you get your head around some of the best practices in small business accounting. Please remember, we have been working with small business owners for decades and love watching people succeed and become more profitable. Best of all, we can fit within your team structure. For some clients, we do everything; for others, we help out here and there.
So the bottom line is I want to help with your bottom line.
Contact my office by dialing 253-838-6708 or shoot us an email at firstname.lastname@example.org – it would be our pleasure to serve you.