When planning to have your own business, do you know the things that you have to consider in order to be successful in running it? Do you know some of the simple steps you have to follow to be a great small business owner? Well, if you are planning and just wanting to start your own small business, consider reading some of the tips and steps you must know in order to have a sustainable business.
When starting a business, including small businesses, there are things that should be planned and considered in order to ensure the success or prosperity of that business; and one of those things is Accounting. To start with, one of the main reasons why every business is established is to earn money by gaining profit from the products or services it offers. So, you should know what is accounting, what are the possible business accounting problems, and how to rectify them.
Definition of Accounting
Firstly, let us discuss in the simplest way what Accounting is. Accounting, as most people know, is the process of managing money by tracking it completely. In other words, business owners should consider having a complete and accurate record of every expense and revenue in order to track if the company gains profit or loses money. Accounting also includes the analysis of every information about finance by considering each business transaction done by the business owners.
Accounting Tips Before Starting Your Own Small Business
Planning to start a small business and subsequently run it may be taxing or burdensome for first time business owner and even for old business owners; that is why having someone who is knowledgeable in the Field of Accounting is a vital step to having a successful and profitable business.
Hiring a Professional Accountant can help the business owner save more time. While the Accountant focuses on every financial matter concerning the business, the business owner can freely focus on some of the remaining and important matters to be dealt with. In that way, the owner saves more time while achieving more goals for the benefit of the small business. Another good thing about having an Accountant is that you have someone to help you do your business plan during the planning stage of your small business.
Accountants also help in the acquisition of the needed licenses such as business permits, tax permits and many more. They ensure the compliance to most, if not all, tax-related issues. They also ensure that the requirement credits for some licensing agencies that allow the continuous running of the business are met. They also prepare business budgets for you, they can oversee payroll, manage debts, audit cash flows and many more.
Also, having an Accountant means being confident that someone is there to consistently focus on maintaining the business’ transactions—such as expenses and revenues— and inventory records including purchases, dates of purchase, purchase prices, number of stocks left, dates the stock was sold, selling prices and many more.
Do you need to hire an Accountant in order to have a successful small business? To answer that question honestly, it would really be of big, big help if you had an Accountant working for you. But you need to put in mind that there is more to running a business than worrying about not having an Accountant to focus on financial matters for you. You too can learn Accounting. Lessons and guides all around the internet are just waiting for you.
Well, as mentioned in the previous paragraph, small business owners need not have to be pessimistic if they still do not have the ability to hire a Professional Accountant. Everything that was mentioned above can be done by them, really. With patience and perseverance, those things that should be completed or performed by an Accountant can also be achieved by small business owners out there.
Accounting Tips While Starting Your Own Small Business
Yes, it may sound like Accounting is one of the most boring and hardest parts of running a business because it you have to put in mind that it is also one of the most essential things you have to focus on. With or without an accountant, here are some of the things regarding Accounting that you need to consider in order to succeed and achieve your business goals. Before your small business takes off, and even during its early stages, you must have a concrete plan to know how you are going to manage and track your money effectively.
As they say, running a business, even just a small one, is a long and arduous journey. Every step you make influences the next steps you have in the future. As emphasized above so many times, Accounting is something you must do properly in order to know not just the next steps but also the right decisions for your business.
Accounting Tips When Running Your Own Business
Here are some of the things regarding Accounting that you must consider when running a small business of your own:
Open a separate bank account for business finances
Before you get your business registered or started, you must think where to put not just all the money to be used for business purposes only but also the money to be earned. In order to monitor and track the money that goes in and out of your business, you must have a separate business bank account. You can not use your personal bank account. In that way, you will easily have an organized separate account solely for the monitoring of expenses and revenues from your business.
Imagine having to pay taxes with just your combined personal and business account. There is a big chance of getting confused about which money is for business or which money is for personal use. That is why having a separate account saves you more time in the long run, you would not have to worry about untangling your business and personal finances. You are not just having an organized and neat record by having a separate business bank account, but you also provide yourself not just a glimpse but a one solid look at the progress of your very own small business.
Just in case you need a reminder, choose a bank that is the easiest to access. Choose a bank that can be easily accessible both online and in person. Also, if you want to be more organized, you can open two business accounts—one savings account and another for checking account. For example, say25 percent to one third of your business’ revenue will be put to the checking account while the remaining percentage of that revenue or even just the right amount of money needed for the business’ recurring expenses, including the taxes you are required to pay, will go to the savings account. Of course, you can do whatever you think is best for those accounts.
Also, another reminder, you must do your research first about the banks that charge less fees for a business bank account because most banks have higher fees for business bank accounts than personal bank accounts.
Track and record all your expenses
Do you want to know what is the secret to having the best bookkeeping system for your small business? It is none other than learning how to accurately and effectively tracking and recording all your business transactions. Really, this one is a vital step if you want to monitor the progress of your business. It also allows every business owner to prepare financial statements, monitor deductible expenses and many more.
Some of the important things that you need to keep for recording purposes are receipts, bills, cancelled checks, proof of payments, tax returns, bank statements, credit card statements and invoices. Note that it is essential to make sure that the expenses recorded are the ones that are directly used for the business only, personal expenses are strictly not included.
Choose an Accounting Method then develop a Bookkeeping System
Accounting and Bookkeeping are two different things. They may be both burdensome tasks, but every business owner out there should get it done. To give you an idea: Bookkeeping is the process wherein one records and categorizes transactions on a daily basis while Accounting is a much bigger process that looks at the whole business and analyzes it— the data gathered from the process of bookkeeping and the business’ current progress.
Choosing an Accounting Method means choosing a method you want to use in recording your financial transactions. This one step is very important when you set up an accounting system for your business.
So basically, there are two methods to choose from—the first one being the Cash-basis Method while the second one is called the Accrual-basis Method. How do these two methods differ when compared with each other? Cash Method is when you record expense and income after the cash transactions occurred or happened. Meaning to say, you only record the transaction once you already paid or received cash. Accrual Method is when you record expense and income just when the transaction occurs, regardless if you have paid or received cash already.
After choosing the best Accounting Method for you, it is time to develop the bookkeeping system for your business. To have your bookkeeping done, there are three options you can choose from. The first one is you can always choose to do it yourself. There is plenty of accounting software out there like Microsoft Excel that you can use to get bookkeeping done. The second one is you can also choose to outsource. In order to have time for more important matters, you have an option of looking for a part-time bookkeeper maybe online. The third option you have is that you can choose to hire an in-house bookkeeper if your business requires it. You have so many choices out there, be sure to look for what you think is suitable for your business’ needs.
For small businesses, the first option is the best one. You would not have to pay other people to do it for you since you can get it done by yourself alone.
Determine how you will receive payments
Based on your small business’ nature, you might want to think about a payment setup for your target customers.Specifically, when the time comes when your revenue starts to roll in, you should really think of a suitable way to accept payments.
Nowadays, cash transactions are not the always the available and best option out there. There will be times when online transactions will cost you less time; so, think about how you will get paid. In-person payments partnered with online payments is really one good option to consider for a payment setup.
Setup a payroll system for your small business
Of course, small businesses start with just a few people, sometimes even one is enough, planning for it and executing it subsequently. But in the long run, have you thought of the growth that may happen once your small business progresses more and more?
When the time comes that it is already suitable for you to hire outside help, you might need to set up a payroll system and a payroll schedule for them. Just like bookkeeping, payroll system is an essential part of having a growing business. Yes, it would take some of your time and energy, but it can get done with just good time management skills and a little bit of analysis.
Know your tax obligations
Tax filing varies depending on the small business’ structure. To give you some example: the self-employed, such as the sole proprietors and the partners, are required to claim income on their businesses’ personal tax return. They must withhold taxes and do it in estimated quarterly payments if the taxes they are required or asked to pay exceed the amount of $1000.00 in a year. On the other hand, corporations differ by being separate entities. The taxes required to pay must be filed from their owners’ earnings independently depending on how much the earnings are. However, just like the self-employed, they are required to do the payment in an estimated quarterly basis too.
Calculate your required gross margin
Improving your small business’ gross margin is one of the best steps to achieving more income. In simpler words, to increase your business’ income, you also must increase its gross margin. You must be aware of how much it costs you to produce the product or services you offer for your small business. To have a better understanding, let us define Cost of Goods Sold (COGS) and gross margin. The Cost of Goods Sold are the direct costs that the business owners had spent during the production of the goods; it includes both the costs or raw materials and labor. On the other hand, gross margin is the percentage that represents the total revenue the business owners keep after calculating all the direct costs to produce the product or service.
Here is how you can calculate gross margin:
Gross Margin (in %) = (Revenue – COGS) / Revenue
Always remember that if you want to keep your business running, you must have a good income. At the end of the day, knowing the difference between how much it cost you to produce the product or service and how much you sell it is one of the secrets to sustaining your small business.
Apply for funding and look for high-quality accounting partners
These two steps are both non-compulsory. But, in order to make sure that everything is safe in your business, you might want to reconsider doing these two steps.
The first one is to apply for funding. There may come a time when there will be low revenue or sales for your business, it may be due to seasons, slow periods or other external factors. In that case, you may want to have a secure fund by having a small business loan to invest in a new development by having a new product or service.
Remember that having a business loan means that you must have to prepare financial statements to have your loan approved. It is also important to analyze if the numbers make sense. After thinking of all the possible ways, make sure that having a loan does not put your small business in any more jeopardy than the reason why you had to apply for a loan. Be sure to calculate all the money you will be needing to pay for the loan, the amount of expected revenue you are going to get and the total production cost. In that way, you will be able to see if it feasible for you to apply for that loan.
The second step that is to look for accounting professionals you can partner with in order to have a better control of the money that goes in and out of the small business. Some of the few individuals you might want to look for are a small business accountant, a certified public accountant, tax planner and a bookkeeper.
Always re-evaluate and improve your methods
In order to sustain your small business, this last step is the best thing to always do. As cliché as it sounds, but change is the only thing that is constant in this world and most people are drawn to change. What I am trying to say is that you must have to assess whether your methods are still applicable for your business. Otherwise, you might want to consider applying some changes to further improve and refine it.
Avoid or lessen the mistakes you make by making continuous growth a part of your business. Always review and, if necessary, modify these accounting tasks you do for the small business.
Additional Tips for Small Business Accounting
To further improve your accounting systems and sustain the business, professionals encourage all the small business owners out there to follow these three steps no matter what stage the business is in.
Always use the appropriate tools
Having to use some accounting software or whatever tools you need is important to simplifying your accounting tasks and having a better monitoring of your money. So, it is integral that you, as a small business owner, study and decide the appropriate tools you need in order to have an effective accounting system. Finding the suitable tools can save you time and money. Be sure to pick the right ones.
Have your trusted staff involved in accounting
Disregarding the position or department some of your staff are in, you, as the business owner, must inform them and give them some ideas about the small business’ financial stand. There will be times when they can think of ideas you can not come up with by just yourself. There will also be times when they can surely contribute to having a better accounting system. So, let them be involved.
Develop all the right internal processes
Make everyone on your accounting staff accountable for the business’ financial success by developing the proper internal processes. In that way, you will be able to keep your small business’ financial information safe from incidents such as fraud and accidental loss.
It is true that starting your own small business is taxing and can sometimes be overwhelming. But, in owning a small business, you must consider Accounting as one of the most important parts and aspects you should focus on. Always know that you do not have to be a Professional Accountant to know everything about managing your business’ income.
Simply know the right and appropriate steps then know your numbers. From choosing the right type of business bank account to estimating how much you will earn; you must have to be careful of every step contributes to the growth and progress of you own small business.
Just to repeat and give emphasis, have a complete and accurate record of everything—from small receipts up to every big expense. In that way, you can easily monitor all the transactions. Also, do not hesitate to ask for a professional’s guidance and advice if you need to. Being sure is better than losing every money you worked hard for. Be sure to be smart in every move you make for your own small business.