Even if you have a background in business before you launch your own enterprise, and even if you took a few accounting classes in the course of your degree program, you might not be prepared for the difficulties of managing income, expenses, and other financial concerns for your small business. But since you probably don’t have the budget on hand for unnecessary head count, you may find yourself wearing many hats, including bookkeeper and accountant. For this reason it is important that you have the right tools on hand to help you (chiefly QuickBooks, although mobile apps like Expensify can help you to track expenses and digitize receipts on the go). And you also need to take the time to learn the basic accounting principles that govern small business operations, at least if you want to comply with rules and regulations and get everything you deserve come tax time. Here are just a few essentials that every small business owner should attend to.
Your business really can’t survive, at least not for very long, without a workable budget, so this is probably the first place you should focus your attention when it comes to accounting. It seems like it should be pretty easy. After all, you have income and you have expenses, just like any business. But since your income isn’t known, unless you have contracts with clients for goods and services that ensure regular funds, it can be difficult to budget from month to month, much less year to year. That said, you almost certainly have a good handle on your anticipated expenses, which is a place to start. When you know how much you’re spending you can determine how much you need to earn in order to get by. Of course, unexpected costs may pop up, so when you begin to earn more than you owe each month you can start socking it away for emergencies or allocating it for planned future expenses.
Another important principle of accounting that you need to understand is the cash basis versus the accrual basis model. The cash method is very simple in that it deals with actual cash exchanges, so to speak. When you make sales, you get paid, and that counts as income on the books. When you make purchases and pay for them, it counts as expense. At least, that’s the basic idea. And it can make your accounting and your tax prep pretty simple. However, this method isn’t feasible for most businesses, which also have to deal with income and expenses that are anticipated, such as monies owed to vendors in the supply chain that have yet to be paid, as well as outstanding invoices that clients have yet to pay you for. Under the accrual basis, all of these numbers are accounted for. You simply need to discuss the pros and cons of these types of accounting with an accountant or financial planner to figure out which will work best for your business.
Finally, you need to understand the importance of accurate bookkeeping. If you’re not accurately tracking income and expenses, credit accounts, and so on, you could not only be missing out on funds that should be coming your way, but you could face some serious trouble when tax time rolls around, whether you file your own taxes or your hire a tax prep specialist to help you. While you can certainly go it alone if you choose, it’s not a bad idea to at least consider hiring an experienced bookkeeper on a temp basis to help you keep your accounts or in order or show you the ropes. You could also consider a service like Ecount Inc. that offers web-based tools to help you with everything from basic accounting to payroll. And of course, it’s in your best interest to hire a qualified CPA annually to ensure that your taxes are done right, helping you to avoid an audit and get all of the money that should be coming back to you. Getting help when you need it is probably the most important principle associated with accounting for your small business.
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