HOW ACCOUNTING CAN HELP YOUR BUSINESS
Financial records are among the most crucial documents to retain, particularly for small businesses. In truth, most small business owners and startup organizations frequently overlook this part of preserving business records, either because they don’t know how to do it properly or because they find it difficult to find the time to do it.
Many business owners believe that doing it themselves will save them money since they believe that hiring a professional will be too pricey.
Unfortunately, this way of thinking can lead to issues down the road because businesses are obligated by law to keep correct and up-to-date records.
With that said, let’s get started on the five accounting-related items you need to be aware of before beginning a business.
RECORD YOUR INCOME & EXPENSES (INCOME STATEMENT)
If you start a business, you will most certainly want to generate money, and it is critical that you have a system in place to track your income and expenses. How you wish to record these events must be your initial choice. Depending on the complexity of your business transactions, you can select an Excel document, a Google sheet, or cloud accounting software. Additionally, you must decide whether you want to carry out the task yourself, hire someone else, or outsource it.
Soon after starting a business, you should begin keeping records. Waiting will make you regret it later on when you need these data and have to search for information that is difficult to discover, then you can think about employing an accountant, either to handle all of your accounting requirements or perhaps just the occasional review of your records to see if anything seems odd.
We all make mistakes because we are human. Before sending tax paperwork to the IRS, a company sometimes goes through four levels of review to ensure sure everything has been taken into account and seen by several persons.
Keep your original receipts on file when keeping records. Yes, you probably will require those. The IRS will want to examine your receipts during an audit, not your Excel file. Businesses should hold onto their receipts until the statute of limitations for your tax return has passed; at that point, it is probably okay to throw them away for tax-related reasons.
TRACK YOUR ASSETS, LIABILITIES, AND EQUITY (BALANCE SHEET)
A balance sheet is a declaration of the assets, liabilities, and capital of your company, you will require one.
A balance sheet is created by accountants using the following common formula: Liabilities + owner equity = assets. Anything of worth that your business holds is considered an asset, including money, product inventories, computers, and other items. Liabilities include debts owed by your business, such as credit card or loan obligations.
The owner’s equity, or ownership rights to the company’s assets, can also be described as the owner’s investment in the business as well as all of the company’s past profits.
A balance sheet may not be used frequently in the beginning, but as your organization is evaluated by banks and investors, it will eventually become crucial. They may also be useful to you because they offer a current snapshot of your company.
SAVE FOR TAXES
You will indeed need to pay taxes. Prepare for it now. Depending on the nature of your firm, where you are located, and what you offer, different tax regulations may apply to your business. To find out exactly which restrictions apply, you’ll need to conduct some study and perhaps speak with an accountant. You must submit taxes, no matter what they are.
Many new enterprises may experience financial losses in their first few years. In such an instance, you most likely won’t have to pay income tax, but you still need to file a business income tax return. You’ll have to start paying income taxes once you actually start earning money. If you’re not ready for it, this can come as a surprise.
You should be aware of this well in advance so that you can prepare. As soon as you start earning money, set aside money for taxes.
BUDGET & FORECAST
You should make a budget for your revenue and spending as you begin to establish your firm and project how things will pan out in the future. When predicting, be careful not to overestimate. Start with the upcoming year and maybe as far out as five years, rather than preparing for the future when you want to be a billionaire in ten years. Be as truthful as you can.
A correctly constructed budget may be quite beneficial as your business expands. Searching for a spot to save expenses? Want to increase sales? Consider your budget and make some adjustments to see what a difference they make.
A budget and projection can assist you in obtaining money in addition to assisting you in managing your firm. Banks and investors will be interested in learning more about your company’s specifics and future plans. Like you, they’ll want to ensure that it’s set up for success, and nothing can achieve this better than a spreadsheet that includes a breakdown of all of your spending and revenues, anticipated for the future.
HAVE SEPARATE BANK/CREDIT CARD ACCOUNTS UNDER THE COMPANY NAME
If you own a business, you should open separate accounts for your banking and other related purposes. Never purchase goods with your personal account. Avoid adding company money to your personal bank account. To manage your accounts and protect yourself, keep these things apart.
You’ll be better off if any tax or legal difficulties come up if you maintain separate accounts. They enable you to precisely establish the boundary between your personal and professional finances. If these are merged, it may be hard to distinguish between them, and you risk being held personally liable for any obligations and debts incurred by the business. If that’s not sufficient justification, maintaining separate accounts is frequently necessary for a bank loan.
Accounting is the process of keeping track of all your business’s financial data. Without accounting, you won’t be able to manage your company, determine whether it is profitable, and you’ll probably run into tax issues. Due to the fact that they frequently want specific financial details, bank loans and investors will also be difficult to obtain for you. Accounting is a crucial component of every company venture and is more difficult than simple addition and subtraction. Small firms frequently consider doing their own accounting in an effort to save money, but this approach might not be the best.
Accounting mistakes can significantly increase a company’s costs. You don’t want to muck up your figures since doing so might prevent your company from expanding. Due to the absence of adequate accounting practices, small business owners frequently make mistakes in their early years.
Here is a common mistake that every small business owner must try to avoid.
Attempting to handle everything by yourself.
Entrepreneurs sometimes have a tendency to want to handle everything themselves since they are so enthusiastic about their firm. You could have been the sole one managing everything when you initially started. The issue emerges when you attempt to manage your accounting independently since you can discover that the standard of services truly decreases. As your business expands, keeping track of your finances becomes increasingly critical, but the labor involved is time-consuming.
You can’t manage everything on your own, let’s face it. Find out how to assign some of your duties to others.
Advice: Your time is precious as a business owner, and you must give it to your company if you want it to expand. It makes sensible to employ a qualified accountant to manage all of the accounts.