Accounting Tips for a Small Business Just Starting Out
Starting a small business is an exciting and often overwhelming journey. Establishing a solid accounting system should be a top priority among the myriad tasks on your to-do list. Proper accounting practices help you keep track of your finances and ensure your business complies with legal requirements and is well-prepared for growth.
Here are some essential accounting tips for a small company that has just started.
Separate Personal and Business Finances
Opening a separate business bank account is one of the first steps in setting up your accounting system. Mixing personal and business finances can lead to confusion, make it difficult to track business expenses, and complicate tax preparation. A dedicated business account helps maintain clear records and establishes your business as a distinct entity.
Choose the Right Accounting Method and Invest in Software
Small businesses typically choose between two accounting methods: cash basis and accrual basis. The cash-basis method records income and expenses when money changes hands. In contrast, the accrual-basis method records income when earned and expenses when incurred, regardless of when the cash is received or paid.
For many small businesses, the cash basis method is more straightforward and provides a clearer cash flow picture. However, the accrual basis method might be more appropriate if your business extends credit to customers or carries inventory. Consult with an accountant to determine which method best suits your business.
Invest in Accounting Software
Investing in reliable accounting software can streamline financial management and save time. Many accounting software options are designed specifically for small businesses and offer invoicing, expense tracking, payroll processing, and financial reporting features.
Popular accounting software options include QuickBooks, Xero, and FreshBooks. These tools help you keep accurate records and provide valuable insights into your business's financial health.
Keep Accurate and Organized Records
Maintaining accurate and organized records is crucial for efficient accounting. Ensure income and expense recording happens promptly and accurately. Keep receipts, invoices, and financial statements organized and stored securely, digitally or physically. Regularly updating your records helps you stay on top of your finances, makes tax preparation more manageable, and provides a clear picture of your business's financial position at any time.
Carefully Track All Business Expenses
Carefully tracking all business expenses is essential for maintaining accurate financial records and maximizing tax deductions. Categorize expenses correctly and keep detailed records of each transaction; this includes office supplies, travel expenses, utilities, and any other costs related to running your business. Using accounting software can simplify this process by automatically categorizing expenses and generating reports that show where your money is going.
Consistently Monitor Cash Flow
Cash flow is the lifeblood of your small business. Regularly monitoring your cash flow ensures you have enough funds to cover expenses and can help you anticipate and address potential cash shortages. Create a cash flow statement that tracks the inflows and outflows of cash over a specific period. Understanding your cash flow patterns lets you make informed spending, investing, and saving decisions. It also helps you identify any cash flow problems early and take corrective action before they become critical.
Prepare for Taxes (and Seek Professional Advice)
Understanding and preparing for your tax obligations throughout the year is crucial for avoiding surprises during tax season. Familiarize yourself with the tax requirements for your type of business and keep track of important tax deadlines. Set aside a portion of your income for taxes and consider making quarterly estimated tax payments to avoid penalties. An accountant can help you navigate the complexities of business taxes and ensure you take advantage of all available deductions.
While accounting software and online resources can help you manage your finances, consulting with a professional accountant provides additional expertise and peace of mind. An accountant can offer valuable advice on tax planning, financial strategy, and compliance with regulations. Regularly meeting with an accountant can help you identify potential issues, plan for the future, and ensure your business is on solid financial footing.
Regularly Review Financial Statements
Regularly reviewing your financial statements, including the balance sheet, income statement, and cash flow statement, helps you stay informed about your business's economic health. These statements provide insights into your business's profitability, liquidity, and financial performance. Use this information to make informed decisions, identify trends, and plan for future growth. Regular financial reviews also help you spot any discrepancies or areas that need improvement.
Don't Forget to Plan for Growth
As your business grows, your accounting needs will evolve. Plan for growth by establishing scalable accounting practices from the start. Invest in software and systems that can accommodate increased transactions and complexity. Set financial goals and create budgets that support your business's growth strategy. Regularly revisit and adjust your financial plans to ensure they align with your business's changing needs and goals.
Work with N.E.W. Accounting
Effective accounting practices are vital for any small business's success. You can build a solid financial foundation by separating personal and business finances, investing in accounting software, keeping accurate records, tracking expenses, preparing for taxes, and seeking professional advice. These steps help you stay organized, make informed decisions, and position your business for long-term success.
Our team at N.E.W. Accounting is ready to handle all your accounting needs. We have experience working with small—to medium-sized businesses. Let's
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