Research shows that cash flow problems remain a leading factor for why small businesses struggle and ultimately fail.
Do you detest all the number-crunching associated with running your organization? You’re not alone. Managing accounting for small business can be overwhelming, and it can also be incredibly time-consuming.
Let’s get into how you can take control of your finances without losing your sanity.
Separate Your Business and Personal Expenses
This is one of the most straightforward steps you can take to manage your accounting. Whether you’re a solo entrepreneur or running a large organization, you need to take care of a few business housekeeping needs. These needs include:
- a dedicated business checking and savings account
- business credit card
- business debit card
Remember that separation of finances is key. It helps simplify your taxes when it’s time to file. Furthermore, in the event of an audit, you’ll have both your income and expenses organized appropriately.
Set Up Your Payroll System
If you have employees, you’ll need to choose an appropriate payroll schedule. You’ll also need to make sure you’re withholding the right tax amounts.
If you have independent contractors, it’s your job to track how much you’re paying each provider. You are usually required to file a 1099 form for each contractor, so make sure that you stay on top of names, addresses, and contact information.
Track All Income And All Expenses
You want to make sure that you’re diligent with your tracking throughout the year. Not only does this help you identify your business’s financial health, but it will also keep you prepared when you need to file taxes.
If you fail to track all income sources, you face serious penalties from the IRS. These penalties are avoidable, so it’s up to you to stay on top of the money coming in.
Likewise, if you fail to measure your expenses, you risk missing out on valuable tax credits and deductions. You should be using your business accounts for all expenses. When you need to use cash, make sure to hold onto the receipts and store them appropriately.
Assess Your Personal Payment System
It’s fun to get paid, but you also need to have a plan for how you’re actually going to accept payment! Will you be working solely with cash and personal checks?
Or will you be accepting credit cards, third-party apps, and other online options? If so, you’ll probably need to set up a business account with a third-party payment processor. You should expect to pay anywhere from 2-3% in interest fees for these services.
Automate Your Accounting
Unless you like keeping your own spreadsheets, there are many software options that will manage your accounting.
Popular options include:
- Zoho Books
- Sage 50cloud
You’ll need to input your relevant bank and credit card information. From there, you can track your cash flow and also populate tax forms.
In addition to managing cash flow, there are also several helpful tools that can help you manage invoices including:
Keep in mind that most software comes with a subscription fee. However, many of these programs offer free trials for you to familiarize yourself with the program and select the best option for your needs.
Hire A Professional
A tax professional takes all the legwork out of figuring out the accounting puzzle for you. He or she will maintain your records, help you with appropriate deductions, and can provide guidance on making smart financial decisions.
Although tax professionals are an expense to your company, they can often save you both time and money. Furthermore, if you are audited, they can help you navigate that process seamlessly.
Keep in mind that not all accountants have the same expertise. You should ideally look for someone that has ample experience in your industry.
Furthermore, you want someone who has similar risk tolerance as you do. While you don’t need an exact match, it’s only going to be frustrating for you to be paired with someone overly conservative (or too risky).
You want to build a relationship with your accountant. The conversation should flow naturally, and the team should be just as excited about your business plans as you are!
Not sure where to find the right person for the job? You can always ask other business owners who they use. Or you can scan through online reviews.
Just remember that it will be hard to get an accurate feel until you get to meet the individual. If a Facetime or face-to-face meeting is possible, make sure you schedule it.
Stay On Top Of Your Trends
Just like you do with your personal finances, it’s always smart to stay on top of your overall business cash flow. Smart entrepreneurs know that all businesses ebb and flow, and your job to pay attention to any concerning issues.
Do you perform better in some months than others? Is your advertising method working as well as you thought it would? How many conversions are you generating each month?
Commit to checking through your books every 3, 6, and 12 months. This system will be able to provide you with a birds-eye view on how everything is running.
Final Thoughts On Accounting For Small Businesses
Even though math may not be your favorite subject, mastering accounting for small business helps you keep your organization- and its revenue- on track. By removing this excess stress, you free up your time to focus on what really matters (like running your business!).
Are you interested in learning more about managing your business finances? We’ve got you covered! Check out this article today.