Financial Services Professional Team
10-Nov-2020 By - team

Good accounting tips to start your small business

Do not let the fact that beginning a new business is a challenging endeavour deter you from doing so. It's something that thousands of individuals do every day, and thanks to their combined experiences, we now have some rules.

People often refer to starting a small business as "taking the leap," as if doing so were an exciting activity. There will also be times that will make your pulse race, such as when you take out a loan, sign a lease, or give the go-ahead for your very first purchase of supplies.

Small business accounting typically involves three key reports: the balance sheet, income statement, and cash flow statement. Companies perform accounting tasks manually, with accounting software, or through professional accounting services.

Yes, you can do your own accounting for your small business, many owners do just that. But as your company grows, and there is more demand for your time during your working day, you may find you need the support of an accountant.

Accounting basics for small businesses
  1. Open a bank account.
  2. Track your expenses.
  3. Develop a bookkeeping system.
  4. Set up a payroll system.
  5. Investigate import tax.
  6. Determine how you'll get paid.
  7. Establish sales tax procedures.
  8. Determine your tax obligations.
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But choosing to launch a new company isn’t a single momentous choice. There are a lot of little choices to make. And if you want to be successful, you will need to work through them in an organised manner while keeping a level head.

Accounting Tips for Small Businesses

Startup companies typically find themselves in a difficult financial position. Even if you’re starting a tech-startup that’s been fortunate enough to be granted generous funding and the ability to outsource your accounting to professionals, I would argue that you still need to have a fundamental understanding of accounting so that you at least know what’s happening with your company’s finances. This is true even if you have the option of outsourcing your accounting to a team of experts. If a company owner doesn’t know where the money is coming from or where it’s going, their employees aren’t likely to view them as a comforting presence in the workplace.

If you want to improve your accounting skills, the best time to do it is when your firm is still relatively small because, at that point, your financials won’t be nearly as difficult as those of a Fortune 500 company. If you have engaged a tax professional, you should ask them to explain the fundamentals to you as you go along so that in the future, you will be able to handle these issues on your own without needing to involve anybody else. Here are some fundamental accounting pointers that you may use while handling your company’s financial aspects if you’re going it alone.

 

Set up your accounts

After successfully establishing your company, the next step is to establish the accounts necessary for conducting business. This gives you the ability to keep your personal finances and spending distinct from your business finances and spending. Even while operating as a single proprietor does not legally need you to have a separate business bank account, opening one will undoubtedly make your life a great deal simpler.

To get started, visit a few different financial institutions. Then, compare the prices and other features various banks offer for their business checking accounts. Some may charge larger costs than others, but in exchange, they may provide additional, more useful perks to your company.

After you have established your primary account, opening a business savings account is something else that should be considered. You will find that this simplifies the process of tax preparation, paying bills, and even saving money for future investments. In addition, if you work in a field that frequently has fluctuations in the amount of employment available, it may be beneficial to have a savings account that may serve as a “war chest” and rescue you in the event of an unexpected financial emergency.

You might also consider applying for a credit card designated for businesses. This might assist you get a head start on establishing good credit for your company for the future. To prevent any confusion regarding use or bills, you should store it in a location that is distinct from your credit card.

Make sure you have finished filling out all the necessary papers before setting up an account. In addition, you should make sure that the procedure of obtaining an ABN has been finished before applying since you could be required to have one.

 

Look at a good bookkeeping system

Keeping accurate books is necessary in order to examine your day-to-day expenditures and revenues. Recording transactions, keeping track of receipts, assigning categories to transactions, and reconciling bank statements are all required steps in this process. In order to get the most out of your accounting, it is essential to have a solid understanding of the day-to-day occurrences in your financial situation. We have written in greater length on the numerous significant reasons why you should begin bookkeeping as soon as you start your firm, and you can find that information here.

To get started, you need to choose the method through which you will retain your books. You can purchase reliable bookkeeping software, work with a bookkeeping service, or take on a bookkeeper on a part-time or full-time basis. In terms of cost, time, and output, each has distinct advantages and disadvantages. Employing a bookkeeper on a full-time basis is the most expensive choice, and it’s possible that your company won’t get the full benefits of doing so. Although it would be more cost-effective to just purchase bookkeeping software, in order to get the most out of it, you will need to devote a significant amount of your time to learning how to use it. A reliable bookkeeping service is optimal for those looking for something in the centre. It is less expensive than hiring an in-house bookkeeper, but it can still provide your company with the benefits of having one. On the other hand, it is essential to select an approach to bookkeeping tailored to your company’s specific needs.

Begin Bookkeeping

Now is when the fun begins, we begin accounting! Utilize whichever bookkeeping technique you’ve selected to keep a record of your day-to-day expenditures and revenues. You will start to observe, on a day-to-day basis, where your money is coming from and going, which will enable you to make adjustments that will help you move closer to becoming profitable. This advice is meant to urge you to maintain a close check on your bookkeeping and be open to making improvements to the method in which your company is managed. You will derive the greatest possible benefit from the time that you invest in this manner.

 

Keep records of everything

This is a fast and easy piece of advice. Always hang on to your receipts! It will be of assistance when it comes time to file your taxes, as well as if you uncover any anomalies in the costs you have incurred. Even though this is a bookkeeping component, it is vital that it warrants its own separate piece of advice.

The bank account associated with your company makes it quite simple to monitor the comings and goings of money related to your business; but this method is in no way nearly as detailed or thorough as it ought to be. You need to have every financial document you own, such as records of transactions, receipts, invoices, and so on, centralised in one location so that it is simple to keep track of and manage them. When everything is consolidated into one location, tax preparation is simplified since there is no need to search in other locations for information that may be missing.

There is a variety of online accounting software that you might use for this purpose, some of which are free, but the majority of which cost money. However, it is also a good idea to preserve an offline backup as well as a physical record, if there are any. However, before you go ahead and put everything up, it could be a good idea to become acquainted with some fundamental accounting concepts to more easily classify things. It is essential, for instance, to classify your expenditures as variable, fixed, occasional, or discretionary to have a clear picture of where most of your money is being spent.

 

Know the Difference Between Invoices and Receipts

One of the most typical ways that proprietors of small businesses screw up their accounting is by conflating the use of invoices and receipts. Therefore, one item of straightforward accounting guidance that should be adhered to is to be aware of the distinction between the two.

After a consumer has received the services that you provide, they should be issued a bill in the form of an invoice. Imagine invoices as thorough bills that should clarify everything the client has gotten from your firm. Invoices should be sent out regularly. Customers are reminded that they have a financial obligation to you in the form of an invoice. They are beneficial in accelerating the flow of cash, maintaining accurate financial records, and guaranteeing that you get paid on time.

A receipt serves as evidence that a transaction actually took place. It is something that is given to the consumer once the transaction has been completed.

Accounting may become a nightmare if receipts and invoices are confused with one another. In addition, if you cannot differentiate between what has been finished and what is still being worked on, you will have a very difficult time attempting to bring your books into balance.

 

Categorise your receipts properly

Continuing on from the previous point, you next need to organise the records you’ve kept by date and put them in the appropriate location. The initial step, which involves scanning physical receipts, is necessary for two reasons: first, it ensures that the receipts will be archived for all time, and second, it allows digital and paper receipts to coexist in your ledger without requiring you to switch between the ledger and your computer constantly. In addition, if you wanted to remember yourself what the receipt was for in the event that you ever needed to conduct an audit of your books in the future, you could write comments directly on the receipt itself.

 

Trade Terms – Improve Your Receipt of Cash

If you are sending out invoices for work that has been finished or services that have been performed, but you are not receiving the payments within a fair amount of time, then it is possible that your trade conditions need to be reviewed. For instance, if you have payment terms of 14 days for a client, but they regularly pay in 21-28+ days, you should probably look at receiving a part of the payment early in order to optimise your cash flow.

Consider purchasing Practice Ignition, a cutting-edge piece of software that streamlines and simplifies the billing process. Because this is a potentially game-changing development, you should discuss it in further detail with your accountant or accounting professional.

 

Determine your payment methods

It is not as easy as it may appear to figure out what kind of payment methods your consumers are allowed to utilise. It is possible to have so many different payment options integrated into your online business that the process might sometimes feel a little overpowering. You should investigate the possibility of introducing additional online payment methods in addition to the conventional Eftpos and Credit Card alternatives in order to provide your clients a wider range of choices. PayPal and Apple pay are two notable instances of such services. When a consumer pays using one of these ways, a tiny percentage is taken out of the transaction by PayPal, Apple, or any other online payment source you choose. This might not look good, especially considering that you are hoping to get as much money as possible. On the other hand, the clients anticipate receiving many of these services. Customers have confidence in the safe payment mechanism that they provide. It is up to you to determine what course of action will be most beneficial for your company.

 

Keep donation and charity receipts

It’s possible that being kind is its own reward, but it also has the potential to lead to some measurable tax benefits for your company. Always make it a point to get in touch with the beneficiary of your gifts and ask for a receipt for the contribution, even if you are confident that your contributions satisfy the criteria established by the ATO. Asking for proof of a good deed you’ve performed may come out as impolite to some people, but reputable charitable organisations almost always offer this kind of documentation to its donors, so you shouldn’t feel awkward about doing so.

 

Periodically update your profit & loss (P&L) statements

The profit and loss statement, or P&L for short, is the most straightforward method for determining how your business is performing successfully (or, heaven forbid) poorly). If you’re just getting your firm off the ground, creating profit-and-loss statements on a monthly basis is a smart way to evaluate whether or not your company is heading in a positive path. However, doing financial statements on a quarterly or annual basis may be prefered for companies that tend to be on the more stable side or for companies that operate in sectors that are characterised by periods of inactivity.

When you compare the profit and loss statements of two separate time periods, you may assess the development—or, conversely, the regression—that your business has through in the interim. A P&L statement is also helpful in tracking the influence of a significant shift on your company in terms of the statistics, which is beneficial in the event that your company has just undergone such a transformation. Even though it is more extensive than the balance sheet and the cash-flow statements, it still does not provide a complete picture of your firm. However, if you use all three together, you should be able to get a more in-depth look at how well your company is doing.

 

Keep a Pulse on Your Cash Flow

The burning issue of cash flow is one that is brought up over and again in conversations. We are unable to pay our debtors, our employees, or even ourselves if we do not have any cash on hand.

Our advice? Make a request to your accountant that he or she create a comprehensive financial study of your small business. You will be able to create objectives, align key performance indicators to achieve growth, and ensure that you have sufficient cash to satisfy your responsibilities if you track and understand your spending.

When it comes to accounting advice for small businesses, knowledge is the most important factor. When you better understand the numbers in front of you, you will have a greater chance of successfully controlling them.

You should think about preparing a cash flow statement whenever you undertake financial evaluations weekly or monthly. These statements provide you with a more comprehensive comprehension of the movement of cash both inside and outside of your firm. A cash flow statement’s basic function is to track income development. In addition to this, it takes into account the passage of time and provides a graphic representation of recurring payment cycles and annual costs.

Statements of cash flow can provide you with the information you need to plan for spending and distribute money more effectively. In the process of constructing one’s financial future, they are also helpful.

It is not necessary, however, to construct a cash flow statement in order to comprehend the movement of monetary resources. Instead, utilising the appropriate technologies can assist you in gaining a comprehensive understanding of the role that cash plays in the operation of your business model.

If you decide to automate your bookkeeping services, for instance, you’ll have an easier time visualising KPIs and statistics relating to the flow of cash.

 

Open a Second Bank Account for PAYG Withholding Tax, Superannuation and GST Obligations

It is possible to ensure that you will always have sufficient cash available when debts are due by doing something as easy as creating a second bank account just for your tax responsibilities. As a matter of best practise, the payroll obligations should be transferred into this account as soon as possible following each run of the payroll process in order to avoid the unnecessary use of funds.

 

Find out your tax obligations

In a situation like this, the assistance of a qualified accountant will be quite useful. They are able to assist you in comprehending all of your tax requirements. For example, do you know when to start adding GST to your items or when to start adding it? Or how much you may expect to receive in refunds when you file your taxes. Perhaps so, but if you hire a professional accountant, they can assist you in maximising your return when it comes time to file your taxes and avoiding costly traps.

 

Know Your Taxes

If you do your own taxes, you are probably already aware with the procedures involved and the necessary paperwork. However, bear in mind that the tax you pay as a corporation may be different from the tax you pay as an individual, with potentially different laws, restrictions, and deductions available to you. Therefore, it is essential to have a fundamental grasp of the tax regulations that a company must meet; thus, you should talk with a qualified tax return accountant to ensure that you are aware of all that must be done.

 

Establish a payroll system

If you are just starting up and are the only employee, you probably won’t need to worry about setting up a payroll system right away. On the other hand, when your company develops, you could discover that you want the assistance of a part-time worker. At this point, you are going to require a payroll system. You will need to devise a plan for your payroll and check that you are deducting the appropriate amount of taxes from each paycheck. If you have engaged an accounting firm or an accountant, they will be able to assist you in setting up this system using modern software such as Xero. They will be able to do so for you. If you are your own boss, you should seriously consider investing in payroll software since it will simplify and streamline the entire process by automating it.

 

Update your business and marketing plans

It is recommended that you review your company and marketing strategy on an annual basis. Examine the last year to see whether you were successful in achieving your objectives, and then plan new objectives for the coming year. Establish your financial priorities, and be ready for the coming year. This is a basic piece of advice, yet it’s still something that some companies don’t do. It is important not to underestimate the significance of making plans for the future since doing so is essential to achieving success.

 

Investigate overseas taxes

It’s possible that you’ve started penetrating new marketplaces in other countries. Now is when you should probably start thinking about the import taxes and any other regulations necessary for trading within that country. Start off by having a conversation with an accountant. They can assist you in understanding all of the taxes regulations, as well as in preparing the financial strategy for the development of your firm.

 

Review Insurances, registrations and licences 

In addition to going through your company strategy, you need to check that all of your licences, insurance policies and registrations are in order. It is possible that there are registrations or licences that you do not require any more, but you may find that there are new ones that you do require. Alterations in insurance premiums are also possible. You may be able to reduce your annual spending or get yourself ready for higher costs by giving careful consideration to these three aspects every year.

 

Re-evaluate your methods

It is important to not be scared to call your accounting practises into question. If you challenge your tactics, you can discover that the things that were successful for your company in the past are no longer effective. This might be due to the expansion of your company or simply changes in the technologies that are available. For example, suppose your company has started to experience rapid expansion, but you are still handling the financial reporting on your own. In that case, you should investigate the possibility of using an accounting service or a professional accountant.

 

Perform a Quarterly Review

At the conclusion of each quarter, you should make it a priority to undertake a thorough examination of your accounting and bookkeeping records. Be on the lookout for any patterns, such as rising or falling sales or an increase in the number of customers, and bring them up with your accountant. They can assist you in becoming better prepared for future capital demands, like growth and/or the purchase of new machinery, allowing you to save money.

When it comes to accounting services, a small business often needs them anywhere from a few hours to a few days every week. Whether you run a sole proprietorship, a corporation, a partnership, or a trust, the Income Tax Professionals can assist you with your small business regardless of the requirements, the size, or the form of your company.

 

Hire an accountant or accounting service

Now we’ll go on to the last piece of advice. If you hire a qualified accountant, they will either assist you in increasing your profits or highlight areas in which you are incurring losses. In addition, they can assist you in streamlining your accounts and may even make you feel less stressed out about the process itself. So even while it could appear to be pointless expenditures here and there, you will find that it is money well spent in the long term. Contact Link Strategies if you are in need of a reliable accounting solution, and find out where we can take your company with our help.

Make sure that you still save a duplicate of all of your receipts, either physically or digitally, even if you choose to manage your accounting requirements using software. If you do decide to utilise software for your accounting purposes, follow the above sentence. When you try to balance your books, if you see any inconsistencies, you may use this method to check everything again and correct it if necessary.

We make use of sophisticated software in conjunction with the direction of trained accounting specialists. As a result, our clients have the advantage of a trusted in-house team of specialists who are always ready to satisfy their accounting requirements.

Our robust software is able to link with a wide range of accounting software partners, such as Xero and Quickbooks, which allows us to automate monthly reporting and frees you up to focus on the growth and success of your small business.

We are the financial headquarters you should come to when you are ready to delegate the drudgery of accounting to someone else and concentrate on running the business you love. To help you get started immediately, we provide sophisticated tools that may save you time and money.

DISCLAIMER

THIS WEBSITE IS ONLY INTENDED TO PROVIDE GENERAL ADVICE; IT DOES NOT PROVIDE PERSONAL FINANCIAL OR INVESTMENT ADVICE IN ANY FORM. ALSO, CHANGES IN LEGISLATION MAY OCCUR FREQUENTLY. BEFORE TAKING ANY ACTIONS DEPENDING ON THE CONTENTS OF THIS INFORMATION, WE STRONGLY RECOMMEND THAT YOU SEEK OUR OFFICIAL ADVICE FIRST. THE INFORMATION CONTAINED IN THIS DOCUMENT HAS BEEN OBTAINED FROM SOURCES THAT EWM ACCOUNTANTS & BUSINESS ADVISORS BELIEVES TO BE RELIABLE; HOWEVER, WE MAKE NO REPRESENTATIONS OR WARRANTIES AS TO THE ACCURACY OF SUCH INFORMATION AND ACCEPT NO LIABILITY IN CONNECTION THEREWITH. WE RECOMMEND THAT YOU CONSULT WITH A TAX ADVISOR, a CPA, a FINANCIAL ADVISOR, an ATTORNEY, AN ACCOUNTANT, AND ANY OTHER PROFESSIONAL THAT CAN HELP YOU TO UNDERSTAND AND EVALUATE THE RISKS THAT ARE ASSOCIATED WITH ANY INVESTMENT.

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