Small Business Accounting 101
Accounting is one of the most critical tasks that any business has to deal with. Regardless of the size of your company, your industry, the number of employees, the sales methods you use, or your business model, you need to understand accounting basics and know how to set up your accounting correctly. It is important from the very beginning because it will save you a lot of time and headaches in the future. Here is a step-by-step guide that you should follow to establish your business accounting processes properly
The Process of Setting Up Your Business Accounting
This process includes several steps:
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Opening a bank account
After registering and starting your business, the next step for you is to open a business bank account. Of course, having a separate bank account for your business is not mandatory, but it will definitely make your life much easier. First of all, a business bank account will protect your personal funds in case of lawsuits, bankruptcy, audits, or other situations. Second, you will have more chances to get approved for funding from creditors or investors.
Opening a bank account starts with doing some homework, which includes shopping around and comparing the fee structures of different banks to find the perfect one. You should keep in mind that most business checking accounts have higher fees than personal accounts. You may need professional accounting help in order to make the right choice.
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Tracking your expenses
You need to learn how to track your business expenses. It is important for growing your business, preparing tax returns correctly, building financial statements, legitimizing your filings, and other processes. You should establish an accounting system for organizing your receipts and keeping financial records. Even though the IRS does not require you to keep receipts for expenses under $75, you should do it anyway. You should pay special attention to the following categories of your expenses:
- Vehicle-related expenses
- Gifts
- Out-of-town business travel
- Meals and entertainment
- Home office expenses
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Creating Your Own Bookkeeping System
As a new business owner, you need to decide how you want to manage your books. There are several ways to do it, and you should choose the one you prefer most:
- You can use special software, such as QuickBooks, for example.
- You can use Excel spreadsheets
- You can hire a part-time bookkeeper
- If your business is big enough, it might be a good idea to hire a full-time accountant
There are many bookkeeping solutions, so you will be able to find one that suits your personal business needs.
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Setting up a Business Payroll System
If you have employees, you need to set up a payroll schedule and make sure that you are withholding the correct taxes. There are many accounting software options that have payroll as one of their features. If you work with independent contractors, you should be very careful and track how much you are paying to each individual. As a business owner, you may have to file 1099s for each contractor you worked with at the end of a year.
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Deciding on How You Will Receive Payments
At some point, you will need to determine the way you will accept payments. If you own your store on Shopify, you can use Shopify payments that allow to accept debit and credit card payments. It is a very convenient system that saves you a lot of time. If you do not want or cannot use Shopify payments, you will need a merchant account, such as Stripe, PayPal, or others. You should also be aware of the fees if you use a third-party payment processor. You may spend some time to find the perfect payment gateway for your business and location.
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Finding Out About Your Tax Obligations
The tax obligations you have depend on the structure and type of your business. If your business is LLC, sole proprietorship, or partnership, you claim your business income on your personal tax return. If it is a corporation, it needs to be taxed independently from business owners, as it is a separate tax entity. If you are not sure what tax obligations you have and they seem confusing to you, it is recommended to consult a tax professional.
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Teaming Up With a CPA
The services provided by a Chartered Professional Accountant (CPA) are very beneficial for small businesses. A professional and experienced CPA will assist you with cash and treasury management, lease negotiations, cash reporting, and other aspects and elements of your business. In most cases, you can get a free initial consultation with a CPA to discuss your business, accounting system, and all the details.
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Refining and Improving Your Methods
Growth is a part of any business, and growth also means change. Once your business is off the ground, you should keep reviewing and modifying your accounting tasks so that they fit your business and address business needs. Reviewing of your accounting system regularly helps your business to grow and contributes to its long-term success.
Duran Business Group - Financial and Accounting Solutions for Your Business
If you need professional help with your business accounting to avoid mistakes and make sure that everything is done correctly, Duran Business Group, with its 15 years of experience, is ready to help. Our specialists will help you prepare accounting books, assist with balance sheet, bank reconciliation, and annual reports. Our mission is to help you with your company's finances and the growth of your business. We also specialize in payroll, IRS & Taxes, and human capital management. If you have any questions or you want to know more about the services we offer, please contact us for more information or give us a call.