Businesses, big and small, need the services of an accountant. For a small company starting, and accountant will assist with your business plan, help you get licences, advise you on the business structure and set you up with a bookkeeping software program. This will get you out of the gate, but it is just the beginning of the relationship.
Having an accountant work for you will free up time to focus on building the business, including customer care, sales and product development. Still, when you are a new business, you often will take on the administrative duties yourself.
Are you wondering where to start? Here is how to do accounting for a small business.
Start with a small business bank account
A business is its entity, and you must separate your assets from the company’s. To do this, you will need a separate business bank account. This will help you secure funding from investors or creditors because you will have clear business financial records to show, and if things go south, you can be protected from bankruptcy, lawsuits and audits.
Start with a checking account for day-to-day operations and a savings account to organize cash flow. You should also get a company credit card to secure funding and build credit to fund projects.
Contract Accountants
Businesses usually go from the owner doing the books to hiring a contract accountant and then, finally, when it is affordable, hire a full-time accountant. Contract accountants are there to take the pressure off small business owners, and in the new gig economy, being a freelancer gives an accountant freedom and mobility.
Company finances are often neglected as a business starts to grow. Instead of making a permanent hire, you can rely on contract accounting jobs. These experts are qualified and experienced in various financial functions, including tax preparation, managing tax flow and organizing your books.
Because they are on contract, you save money because you don’t have to pay for a full-time salary or any benefits. It is also easy to hire someone in the short term because they can work remotely or come into your office part-time, so they don’t have to fit perfectly with your office ethos.
These accountants regularly work with deadlines, so you will get faster results because they know how to hit the road running. Their input is also new, and they bring a fresh perspective to your business activities, and that can be extremely beneficial. Overall, having a professional accountant working on a fractional basis will help your business grow and prosper.
Begin tracking your expenses
Bookkeeping is all about accurate expense tracking, and you must do this. It will help you:
- Monitor growth
- Prepare tax returns
- Put together financial statements
- Track deductible expenses
This involves the organization of receipts and other records like out-of-town travel, home office receipts, vehicle expenses and business meeting meals and entertainment.
This can be put into an accounting system to create source documents.
Put together a bookkeeping system
To keep things organized, you need a day-to-day accounting process, which is what bookkeeping is. You will record any business transactions and reconcile bank statements using a simple Excel spreadsheet or made easier with programs like Quickbooks or Wave.
There are two accounting methods for small business owners: cash or accrual.
Cash Method
Any expenses or revenue is recognized when paid or received.
Accrual Method
When the transactions occur, expenses and revenues are recognized, regardless of whether the cash is in or out of the bank. You must track payables and receivables.
Set up your payroll
As your business grows, you go from a one-person operation to having employees, which requires a payroll schedule to withhold the proper amount of taxes. You must accurately track how much you pay each contractor if you have independent contractors.
Other important duties that are required for small business accounting include:
- Journal entries
- Ledger
- Financial statements
- Unadjusted and adjusted entries
- Adjusted trial balance
- Closing entries
- Determining payment terms
Does this seem overwhelming? It can be a challenge for a new business because you may be excellent at your chosen craft and effectively bring it to market, but if you can’t take care of your books, you are in for more than a bumpy ride.
Fortunately, there is a solution for a small business, and it is a contract accountant.
Small business accounting can be challenging, and you need to wear many hats in your company. If you have the skillset and time, handle it yourself, but as you grow, hire a professional to take on the company’s financial accounting.
