Making mistakes in your accounting can have serious implications for any business, such as significant fines for suspected tax evasion. For a large corporation, this can damage both the finances and the reputation of the company. For a small business, however, it can have a huge impact and possibly even cause the company to go under, if there is not enough money to pay the fines.
Good accounting is therefore essential right from the very start.
Many small business owners believe that they do not need to do any kind of accounting, or do only basic bookkeeping, but this is wrong. It is critical for every business, no matter its size, to start accounting from the moment it starts trading. Simply keeping hold of customer receipts and invoices is not enough, the business must set up a simple but thorough system to record all transactions made and to produce reports as and when needed. Getting off to a good start with accounting will set your business up for long-term success.
When you launch your small business, open a separate bank account for it.
It is not uncommon for sole traders for example to simply use their personal checking account for their business but this then makes it impossible, or at least extremely difficult and time-consuming, to carry out a reconciliation, which is a check to ensure that the figure your bookkeeping tells you should be in the account is indeed the amount in the account.
Reconciling your books and accounts regularly, such as weekly or monthly, is a great way to avoid accounting errors.
This way if the figures do not add up you will have more chances of being able to correct the mistake. Imagine trying to find a small receipt from ten months ago, for example. That is the kind of problem that can occur and be impossible to correct if you only check your books against your bank right before you have to submit your annual tax return.
Good bookkeeping and accounting such as producing monthly cash flow statements
not only benefits you when it comes to submitting your tax return, which is much easier when you have all of the necessary figures and documentation already in place, but it also benefits you because you can see if you are overspending on particular items or services, and predict whether you will make a profit or loss. You can also start to see trends, such as seasonal increases and decreases in profit, which may otherwise have gone unnoticed.
Another great tip is to find out if you are entitled to any tax credits as a small business owner.
Too many small companies do not realize that they may be able to claim certain expenses such as travel, home office costs, and even childcare as untaxed. Be sure to do your research to make sure you are not overpaying.
For small businesses that want to keep their accounts in good order but who perhaps do not have the expertise needed to do their own accounting, there are a couple of options to choose from. It is possible to buy accounting software online that will produce reports for you. These are relatively cheap and easy to use, however, the reports are only as good as the figures you enter into them so if you make an error, it is likely to go unnoticed.
Hiring a small business accountant, however, ensures that your accounts will be prepared by a knowledgeable and experienced person who pays meticulous attention to detail. You can opt for a local accountant or, to keep costs down, you can find an accountant online who generally charge lower fees.
It would be highly recommended to any small business to hire a small business accountant as a consultant right from the start of the process, which gives them time to familiarise themselves with your business before the busy period at the end of the tax year. However, you want to ensure that you are working with an accountant who understands your position and can advise on how best to handle your finances, so wherever possible opt for someone who specializes in small business accounting and, preferably, who has already worked with small businesses that are in the same industry as you are. If you live in a large city, accountants tend to be readily available with the necessary background, but if none of your local accountants can offer what you need, then it would be best to find one online, rather than opt for someone who only knows how large corporations work.