If you ask small business owners and those who have recently started their businesses what their biggest problems and concerns are, bookkeeping often comes up first. It requires owners to set aside time from the usual business and it’s through it that you withdraw your money. There are a lot of rules and laws that must be followed and the fact is that most people need some form of help to handle their accounting so that their business can stay in full control of the finances, ensure that financial resources are used effectively, and efficiently and that they’re not spending money you don’t have.
Efficient small-business accounting can prevent bankruptcy and also provides better conditions for being able to make a profit. Below we share certain successful accounting methods you can use to properly strategize for your company’s future and meet your legal requirements.
The basis of proper small business accounting is knowing how to effectively and accurately track expenses. It’s a crucial step that allows you to monitor the growth of your business operations, build financial statements, keep a close eye on deductible expenses, prepare tax returns, and legitimize your filings.
From the very beginning, you should have an accounting system in place for organizing receipts and other valuable records. This process can be simple but if you feel that you don’t have enough time for this, an option is to look for an experienced company like hiline.co that offers startup accounting services or virtual accounting services to run your books and that will always have your best interests in mind. This is not only a convenient alternative for small businesses, but it’s also highly cost-efficient.
As the accounting period comes to an end, you should record adjusting journal entries to record transactions that don’t impact your bank account. The most common types of adjusting journal entries include:
Accruals are only needed if you practice the accrual accounting method. They make sure your financial statements reflect all revenues and expenses that occurred during the period. For instance, you can record accrued wages and payroll taxes for hours that your staff worked during the last week of the year, although you will not cut payroll checks until after year-end.
Deferrals are solely necessary when using the accrual method and account for cash received or paid in advance that belongs in the following accounting period. If a client, for instance, pre-pays for services you have not performed yet, you would record the payment as deferred revenue until the service is performed.
You may be required to account for other transactions that failed to go through your business checking account or credit card statement. This can be buying business supplies with your credit card, correcting errors, recording depreciation expenses, or estimating reserves.
At the end of the month, quarter or year, you must generate financial reports. Depending on the type of business you run, you can use different financial reports, but the main ones used in small business accounting include:
A balance sheet can simply be said to be a compilation of the company’s profit and liquidity budgets. Unlike these two, which show periods, the balance sheet also provides a snapshot of the company’s financial situation at a specific point in time.
The income statement is one of the main parts of a company’s financial statements and must be included in the annual report. It summarizes your revenues, costs, and expenses over a particular period and can help in comparing your sales and expenses to your budget.
A cash flow statement shows the company’s inflows and outflows during a certain period, usually the financial year, and helps you make cash flow projects and ensure that you have funds available to pay bills.
The balance sheet, the income statement, and the cash flow statement are altogether important tools used to get a picture of the company’s financial situation and at the same time report what the company owns and owes.
Your small business tax filing duties depend on how the business is structured, what you sell, the number of employees, and your location. Filing taxes should be no issue if you’ve done a proper job of tracking your business revenues, and expenses and have accurate financial statements.
Small businesses must keep track of their finances – from day one. Your small business is affected by both VAT and taxes of various kinds, which means you need to keep track of the ongoing accounting to see what income and expenses you have throughout the year. Keep the above tips in mind to manage your books well and you will be able to run your small business successfully.