One of the biggest reasons many small businesses fail is because of poor financial planning. It’s easy to get lost in expenses, income, and profit when it’s your first time running a small business. This can be intimidating, especially if you don’t have a strong accounting background.
Luckily, you don’t need to go back to business school to master the basics of money management. It all comes down to patience and the willingness to learn new strategies. Here are some accounting tips perfect for small businesses that will get you started on the right foot.
1. Accounting Services For Self-Employed
If you’re a self-employed individual or you only have a few employees under you at your small business, odds are it would be good to hire an accountant. Although you can probably get away with keeping your own records it’s more often than not that things fall apart. Your day-to-day accounting details are likely already being tracked on your banking and credit card records, but you shouldn’t rely on this alone!
Sit down regularly and write out these individual transactions using your bank records as a guide. Include income, expenses, and any extras. Basically, if any money is going in or out of your business, you need to have a clear record.
2. Business Bank Account
Next, aside from record keeping, you need a way to keep your business spending separate from your personal spending. Mixing your finances can have disastrous results if you’re not careful, so it’s best to avoid it altogether. You can open a new bank account under your business’s name and Employer Identification Number (EIN).
With a separate bank account, you’ll be able to pay taxes easier and record keeping will become a much simpler process. Even if you only have a sole proprietorship, you should consider opening a business account to ensure you don’t confuse any of your income and expenses with personal matters.
3. Profit and Loss Statement
A profit and loss statement might sound confusing if you never studied it in school, but it’s much simpler than it seems. It’s simply a snapshot of your business’s financial health. It includes a summary of your expenses, costs, and revenues over a specific set of dates. If your employees are keeping track of their time through time tracker or sheets like these here it can significantly help you out in determining how much time and money each of them is spending on regular tasks.
This statement is useful not only for helping you keep track of spending, but also to anticipate profit margins. You can see just how much you’re spending on expenses, as well as how much you expect to make currently. This means you can make smarter decisions that affect the future of your company.
4. Put Your Taxes Aside
No matter the type of business you’re running, you need a plan to cover your taxes. As a small business, you’ll be expected to pay the employer tax, and this can be costly if you don’t prepare. Always collect taxes at the time of sale. This will help you avoid paying a lump sum out of pocket when you file at the end of the year.
You can include taxes in your invoices, the cost of the product, or even just your own rates. No matter what you choose, make sure you secure tax money in a safe place and keep track of how much you’re expected to owe.
Learning how to take care of your small business’s finances doesn’t always come easy. It might take time and effort to learn the basics and discover how they work for your business. You don’t have to be a math genius to get the job done as long as you’re careful and diligent.