It takes first-time business owners, uncommon passion, and perseverance to turn a great idea into living. Starting a company is challenging, especially if you lack a background in business and don’t have the required accounting training. But with the right tools, anyone with the drive to succeed can launch a business.
When it comes to accounting, you need to first understand the basics so you can determine if it’s best to do your accounting yourself, use the software, hire an in-house accountant, or work with an outside accounting consultant.
Accounting is a term commonly used in the business arena, especially during the tax season. It refers to the systematic recording of financial transactions of your small business.
Careful accounting is essential to every business. It helps you track the income and expenditures, provide investors quantitative financial information, ensure statutory compliance, and come up with accurate financial projections.
Three vital financial statements are often generated based on your business’s accounting record: your income statement, balance sheet, and cash flow statement. Together, these reports create a clear picture of your business’s financial position and the profit it makes.
To ensure that your business stays afloat, you have to keep your financial records up-to-date. Here are a few reasons why accounting is crucial for your small business:
- It helps evaluate your business’s performance by helping you understand what’s going on with your business financially and compare the current data with previous accounting records to allocate budget efficiently.
- Proper accounting records help you stay legally compliant by appropriately addressing liabilities like sales taxes, value-added taxes, income taxes, pension funds, etc.
- Your financial records play a vital role in helping you create a budget and future projections based on historical data so that your operations remain profitable.
Before you officially launch your business, you should properly set up your accounting administration. Accounting can sometimes feel like the most tedious aspect of running a business, but it’s vital to stay on track, especially during the tax season and early business stages. Here’s a quick checklist that will help you set up your financials:
- Open A Business Account
When you start your business, you need an account to hold all your income. You also have to keep your personal and business finances separated to avoid complications during the tax season.
When opening a business bank account, choose a bank that fits your needs. Start with a savings and a checking account. You can keep your revenue in the checking account and hold a percentage of your money in the savings account to pay off taxes at the end of the year.
- Track Your Expenses
Often, small business startup expenses are tax-deductible. However, to claim these deductions, the IRS needs you to record every cent you spend. Take special care to hold on to the receipts, bills, invoices, bank and credit card statements, canceled checks, proof of payments, previous tax returns, W2 and 1099 forms, and any other financial statements.
- Payroll Management
Payroll management requires three steps: preparing your payroll, paying employees, and accounting for post-payment. Typically, employers create a separate payroll bank account for paying employees with checks or direct deposit.
Is Assistance Necessary?
An accountant is highly skilled at handling all the essential financial tasks associated with running a business. They can manage everything from bookkeeping to preparing financial documents and financial planning.
A certified public accountant (CPA) is someone who has passed the state’s uniform CPA exam and meets both the education and experience requirements of the state they practice in. They are capable of offering advice, ensuring you make the right business decisions.
The potential disadvantage of hiring an accountant is the added expense. However, your CPA can advise you on tax credit deductions, helping you increase your profits. Furthermore, they can also decrease the liability of mistakes in your tax filing, protecting you from penalties and interest. By working with an accountant, you can save a lot of money in the long run and up more of your time to focus on running your business. If you do decide to go this route, start by running a simple Google search on “a small business accountant near me” and look for one that offers accounting and tax services.
Knowing Your Numbers
Starting a business is an overwhelming process, but even novices can handle accounting and bookkeeping with research and preparation. However, doing your own accounting may not be the best decision for your company, as mistakes are easy to make, and you’ll likely be needed elsewhere.