6 Essential Accounting Tips for Small Businesses

Starting a small business can be exciting and difficult at the same time. Although entrepreneurs usually concentrate on developing a fantastic product or service but managing the finances of their business is one of the most important aspects. Any business, no matter how large or small, largely depends on its accounting processes. 

Accounting is the process of monitoring financial transactions, reviewing financial data, and taking decisions based on that information. Financial loss, missed opportunities, and even legal issues can happen due to poor accounting processes in an organization. 

We will share the top six most important bits of advice in this blog to help you in managing your accounting better:

• Keep Your Personal and Business Finances Separate

Mixing both, their personal and business finances is one of the biggest mistakes that small business owners make. Due to this, keeping track of your expenses and income, as well as filing your taxes accurately becomes difficult. Creating a separate business bank account and using it only for business-related transactions is the only solution to this problem. This will make it simpler for you to manage your money and make sure you are adhering to tax laws.

A separate credit card for your business expenses should also be obtained. This will make record keeping easier, stop mix-ups with personal expenses, and help in improving your business’s credit score. 

• Use Accounting Software

Gone are the days when businesses had to rely on manual accounting methods. QuickBooks hosting service allows users to access QuickBooks accounting software anytime from anywhere with a local desktop. With the advent of cloud-based QuickBooks (accounting software), small businesses can now automate their accounting processes and save time and money. There are many accounting software options available in the market, ranging from basic to advanced features. Some of the popular ones include QuickBooks, Xero, and FreshBooks. These software tools can help you track your income and expenses, generate invoices, manage inventory, and create financial reports. They also offer the added advantage of being accessible from anywhere, anytime, as long as you have an internet connection. You can keep track of your finances manually or use accounting software. Accounting software can automate your financial record keeping, generate reports, and help you to stay on top of your cash flow. Moreover, Cloud-based QuickBooks is a service offered by third-party providers where your QuickBooks Desktop is hosted on remote cloud servers.

• Keep Accurate Records

Accounting for small businesses depends on accurate “record-keeping”. This requires maintaining a record of your earnings, expenses, assets, and liabilities. For keeping yourself ready for tax season and any potential audits, it is crucial to keep all of your financial records updated and organized.If you want to keep accurate records consider using accounting software that enables you to create reports and monitor your financial data in real-time. Additionally, you must properly file and keep all of your receipts and invoices organized. This will make it simpler to reconcile your accounts and be sure about the accuracy of your financial records.

Cash flow is the life of any business. It is important to monitor your cash flow regularly to ensure that you have enough money to cover your expenses and invest in the growth of your business.To monitor your cash flow, create a cash flow statement that outlines your cash inflows and outflows. This can include money coming in from sales, investments, and loans, as well as money going out for expenses, payroll, and other costs. By tracking your cash flow, you can identify trends and anticipate any potential shortfalls in cash. You can also use this information to make strategic decisions about your business, such as when to invest in new equipment or hire additional staff.  

• Hire a Professional Accountant

Small business owners frequently juggle many tasks, and they mostly don’t have expertise in accounting. Employing an accountant will enable you to manage your money more skillfully, receive professional guidance, and guarantee that all tax regulations are followed. Your accountant can also help you in spotting potential tax breaks and avoid costly mistakes.

Bookkeepers, tax accountants, and certified public accountants are a few examples of the different types of accountants (CPAs). Before hiring an accountant, take your company’s needs and budget into account. For instance, a bookkeeper can help you with fundamental accounting duties like billing, paying bills, and balancing bank accounts. You can prepare and file tax returns with the assistance of a tax accountant. A CPA can represent you during an audit and offer more thorough accounting services.  

•  Track Your Expenses

Keeping track of your expenses is crucial for small business accounting. This includes all of the money that you spend on your business, such as rent, utilities, equipment, and supplies. By tracking your expenses, you can see where your money is going and make adjustments to your budget as needed. It can also help you identify areas where you may be overspending and make changes to improve your profitability.

To keep track of your expenses, consider using accounting software like QuickBooks or Xero. These programs allow you to input your expenses and categorize them, making it easy to generate reports and analyze your spending. You can also use mobile apps like Expensify or Shoeboxed to track expenses on the go, which can be particularly helpful if you travel frequently for your business.

• Plan for Taxes

Small businesses are subject to various tax obligations, such as income tax, payroll tax, and sales tax. It is important to stay on top of these obligations to avoid penalties, fines, and legal troubles. In addition, you can take advantage of various tax deductions and credits to reduce your tax liability and save, and it is important to plan for them in advance. This includes understanding your tax obligations and deadlines, as well as keeping accurate financial records throughout the year.

To plan for taxes, consider working with an accountant who can help you estimate your tax liability and develop a tax strategy that is tailored to your business. You should also make sure that you are taking advantage of any tax deductions or credits that you may be eligible for.In addition, it is important to set aside funds throughout the year to cover your tax obligations. This can help you avoid unexpected tax bills and ensure that you are able to pay your taxes on time.

In conclusion, accounting is a critical aspect of running a successful small business. By keeping your finances organized and up-to-date, monitoring your cash flow, and planning for taxes, you can ensure that your business is on solid financial footing. Hiring a professional accountant can also help you navigate the complexities of small business accounting and ensure that your finances are in good hands. With these essential accounting tips, you can focus on growing your business and achieving your goals.