Accounting Tips for Small Business Owners
Every journey starts with a single step – and when you're a small business owner, the start of the journey may feel like a full-on sprint. Finances are some of your first significant considerations when you decide to start a small business. Typically, your best bet is to let an expert guide you through the process by hiring an accountant.
However, as with hiring the rest of your staff, this process takes time. While hiring an accountant, or if you already have an accountant and want to help them, here are some accounting tips for small business owners.
Pick Structures
One of the first aspects of accounting you should consider when planning your business is which accounting structure your business will run on. The two main accounting structures are cash-based accounting and accrual-based accounting. Cash-based accounting is more straightforward because the company records the revenue when they receive payment. This structure works well for small businesses, particularly those in the professional services industry, where they may not have an inventory.
For accrual-based accounting, the company records the revenue when it is earned, not when the payment is actually received. For instance, when the company delivers a service or ships merchandise, they record the income. The accrual-based structure may be a better choice for a company with inventory, stakeholders, and a slightly bigger size, as it also provides a snapshot of the company's financial health at any given moment.
Forecasting
If you're an avid watcher of the Weather Channel, you know that while the weather forecast is always subject to change, it can help you make plans. The same can be said for business forecasting. It may seem daunting to have a forecast when you are new to starting your business. However, answering a few questions about your goals will help you and your accountant along the way.
You should consider what your annual sales will be, whether the company can break even each quarter, whether you have enough staff hired to meet sales demands, what changes your inventory needs, etc. You should also check your business forecast throughout the year to see if your numbers align with the forecast.
Separate Business and Personal
In the first stages of your business, it can be tempting to start using personal accounts for financial transactions. Beyond what may be necessary, this is not a good strategy. You should set up a business bank account with an employer identification number as soon as possible. As any accountant will tell you, having a business bank account can offer you liability protections and make it easier to get tax deductions. You can also build up credit to cover cash gaps that your company may face.
Further, you benefit as an individual from keeping your business and personal separate since you won't have blurred lines between private investments and expenditures and your business finances. Another step to consider when separating business and personal is how much you will pay yourself when your business begins making money and you are paying your employees. Once again, when you hire an accountant, they can help you plan these considerations.
Protect Your Money and Data
Unfortunately, small businesses can be an easy target for many scams. On the digital side, many scammers send out malware via emails and email attachments, which falls under a phishing scam. Scammers are always coming up with the latest and greatest new techniques, so the best defense is to continually learn about these cyber-attacks and train your employees on how to avoid them.
You should also use two-factor authentication whenever possible for financial accounts, social media accounts, etc. It is also imperative that for any financial transactions, multiple people need to look over and approve them. This is easier said than done if you don't have many employees, but it will help prevent mistakes and even internal employee fraud.
Choose Software and Automation
Finally, every business owner should choose software or an application that automates specific accounting or bookkeeping tasks. Even if you have an accountant or accounting team hired and they have software they plan to use, you should know about the system and talk through it with them.
Luckily, there are many choices for software, and new capabilities are constantly being added. On the other hand, this can make choosing software overwhelming. With research, planning, and working with an accounting team, you can make the right choice for your business and get a running start on your finances.
Work with N.E.W.
Our team at N.E.W. Accounting is prepared to meet all of the considerations above and exceed your expectations. We know that small to medium-sized business owners can feel bogged down by their company's numbers, and we want to work with you so that you can focus on the rest of your business.
Contact us today to get started!
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