15 Essential Accounting Tips for Small Businesses

As of 2021, there are 32.5 million small businesses in the US.

If you are looking at starting your own business, there are a lot of things you need to prepare for. One of those is properly keeping your accounts in order.

This can be very complicated, especially when first starting out, so it is important to know everything you can.

For 15 of the best accounting tips for small businesses, keep reading.

1. Keep Personal and Businesses Taxes Separate

One of the first things you should do when starting a business is set up a business bank account. This will make it much easier to keep track of the money coming in, and going out of your business.

If your business is a limited liability company this can also help limit legal exposure to business debts. When it comes to calculating your taxes having a clear record of your expenses will be hugely helpful.

2. Record All Income

While running a business you may find money coming in from various sources such as revenue and loans. You will want to keep track of all of these so that you can accurately calculate your taxes at the end of the tax year.

Paying the wrong amount of taxes can result in large penalties, so it is something you definitely want to avoid.

3. Track All Expenses

As with the money coming into your business, you will also want to keep track of the money going out. All business expenses can help you save on your taxes, so any you don’t keep a record of could result in unnecessary losses.

Using your business credit card for all expenses will help you keep things organized, and you can earn rewards and cashback on your purchases.

4. Hire an Accounting Service

Hiring a bookkeeper or accountant may cost more than taking care of everything yourself, it can be incredibly helpful.

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You can hire a bookkeeper for just a few hours per week or month to give you accounting help, which will ensure all your income and expenditures are kept organized. An accountant can even assist with filing taxes and strategic planning for the future.

Depending on the type of business you are running they may also be able to help you avoid potential fees or figure out loopholes to maximize your income.

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5. Use Automated Accounting Software

One of the best ways to streamline your bookkeeping is with accounting software. You can link your account or credit card directly to the software and provides a number of functions for you.

This includes:

  • Tracking income and expenditures
  • Categorizing payments
  • Allows you to send and pay invoices
  • Generates reports

Automating such processes can save time and help improve accuracy. If you have hired professional accounting services you can also give them secure access.

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6. Keep Your Books up to Date

The more complicated your accounts are, the more time you should set aside for this. Blocking out a set amount of time each week to keep on top of things will help in the long run.

If you let everything pile up you can end up overwhelmed when trying to catch up. This is an area where accounting software such as QuickBooks can be very helpful.

7. Maintain Inventory Records

If your business involves selling products this is especially important. You should keep a solid record of:

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  • Stock numbers
  • Purchase prices
  • Sale prices
  • Dates purchased
  • Dates sold

If this isn’t done and anything gets misplaced or stolen you might completely overlook it. Not only will this result in reduced profits, but it will cause issues when organizing your books.

Many accounting software comes with inventory management tools, or you can find other programs that are specifically designed for inventory management.

8. Track Labor Costs

Depending on the nature of your business, labor costs can vary greatly, and in many cases, this makes up the majority of the business’s budget.

Most of the time staff work set hours, but things like overtime, perks, and other benefits need to be recorded. Not doing this properly can easily result in overpaying or underpaying employees.

Payroll taxes work differently from income taxes, so this is another good example of an area where you may want to hire a professional and/or use accounting software.

9. Create Financial Projections for the Future

This is one of the best ways of being prepared for the future. Financial projections and reports can give you a rough idea of where you will be one, or several years down the line.

From there, you can make plans for how to best invest business revenue and start thinking about a potential business loan.

Making projections can be difficult as there are factors that will change and are out of your control, such as inflation or client decisions.

Figuring out these, and trying to work out what your future revenue may be, are not easy tasks. If you haven’t done this before you will almost certainly need the assistance of an experienced accountant.

10. Develop a Budget

Developing a budget is something you will want to do before you start your business. It may then change with time in line with and financial projections you produce.

Alongside this, it is recommended to have a separate account just for payroll. Trends show that having a budget and using a payroll account is directly linked with the financial health of a business.

11. Prepare for Major Expenses

Your business may have regular money going out such as wages and bills, but you also need to be ready to make some large and sometimes unexpected payments.

The types of expenses you might have will depend on your business, but can often be things like computers or office furniture. If you’re not as organized as you should be, even your tax payments could end up being one of these.

12. Remember Tax Deadlines and Rules

It is very important to make sure you pay your taxes on time to avoid facing fines. You can sign up for email reminders or place reminders in your calendar. The IRS website also has a tax calendar for businesses that you can sync up with your own.

To calculate your tax properly you need to know which ones apply to your business. Some of the most common are income tax, corporation tax, VAT, and National Insurance. Make sure you have done your research so you know what you will need to pay.

The best thing to do to prepare for tax payment is to put a portion of your profit aside each month. A large tax payment isn’t something you want to catch you off guard.

13. Follow Up on Invoices and Receivables

It is an unfortunate thing, but sometimes people might just not pay you. This could simply be a mistake, or maybe even a deliberate decision. Either way, you want to make sure you are always being paid for your products and services.

Sending out an invoice lets people know how much they owe you, but it is then down to them to process the payment. It is good practice to go back through invoices to make sure you have been paid for each one.

We recommend sending invoices out immediately after a job is done as it increases the chances of being paid on time. If you choose you can even offer incentives for early or quick payment.

Accounting software can be used to automate this process. Ensuring all invoices are fully paid will keep your profits where they should be and prevent errors in your books.

14. Create Profit and Loss Statements

P & L statements help to give you an idea of the financial health of your business by giving a summary of revenues, expenses, and costs during a specific timeframe.

Information including gross profit, operating profit, net profit, and profit before tax make it a lot easier to see how much your business has made, and makes the whole tax payment process much easier.

15. Separate Accounting Functions

Small business accounting may benefit from this more. Small businesses often have just one employee working on the accounts, but this increases the risk of fraud.

An example of this would be to have one person write the checks, and another signs them. Separating processes and assigning them to different people can help reduce any risks.

More Accounting Tips

There are several other things you can do to improve your accounts processes, and larger businesses may need to handle things slightly differently.

If you are new to business, the best thing you can do beyond keeping up to date with accounting tips is hiring a professional service to make sure everything is done right and you don’t fall into any traps.

If you’re interested in reading more business-related articles check out some of our other blog posts!

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