Starting a new business is a big job, but don’t let that put you off. Thousands of people do it every day, and those collective experiences have given us guidelines.
People talk about ‘taking the plunge’ into a small business like it’s an adrenalin sport. And there will be some heart-stopping moments, like when you take a loan, sign a lease, or greenlight your first order of supplies.
But starting a business isn’t one big decision. It’s hundreds of small decisions. And if you want to succeed, you need to move through them systematically and with a cool head.
Cash-strapped is the default setting for new businesses. Even if you’re starting a tech-startup that’s been lucky enough to be graced with generous funding and the ability to outsource your accounting to professionals, I would still argue that you still need to be aware of basic accounting to at least know what goes on in your company’s financials. A business owner that doesn’t know where the money is coming from and going to wouldn’t exactly be a reassuring presence to their employees.
When your business is still small is actually the perfect time for you to brush up on your accounting as at that stage, your financials won’t be as complicated as a Fortune 500 company. If you’ve hired a tax professional, get them to explain the basics to you as you go along so that in the future, you could be trusted in handling these matters by yourself. If you’re flying solo, here are some basic accounting tips you could use in managing your business’ financials.
Once you have registered your business, you should set up your business accounts. This allows you to separate your personal accounts and expenses from those for your business. While legally if you are a sole trader, you do not need a separate account, it will make your life a whole lot easier if you do set one up.
Start by shopping around at different banks. Look at fees and other benefits for a business account across multiple banks. Some may have higher fees but offer other benefits that may be more beneficial to your business.
Once you have set up your main account, it is also a good idea to open a business savings account. This will help you when managing tax, bills, or even help in building money for future investments. If you are in an industry that commonly has ups and downs in terms of work, it could also be useful to have a savings account that acts as a ‘war chest’ saving you on a rainy day.
You could also look at a Business credit card. This can help you begin to build your business credit for the future. It is a good idea to keep it separate from your credit card to avoid any clashes of usage or bills.
Before going to set up an account, ensure that you have all the required paperwork completed. You may be required to have an ABN so ensure that you have completed that process before applying.
Bookkeeping is essential for looking at your day to day expenses and revenue. It involves recording transactions, keeping track of receipts, categorising transactions, and reconciling bank statements. It is important to understand what is happening day to day financially in order to get the most out of your accounting. There are many important reasons to begin bookkeeping the second you start your business, and we have written about them in more detail here.
Start by figuring out how you want to do your bookkeeping. You could either get a good bookkeeping software, hire a bookkeeping service, or hire a bookkeeper full time. Each has there own strengths and weaknesses in regards to cost, time, and output. Hiring a bookkeeper full time is the most expensive option and is something your business may not benefit entirely from. While just buying bookkeeping software may be cheaper, but you must put a lot of time into it in order to get the most out of it. A good bookkeeping service is the perfect middle option. It costs less than an in-house bookkeeper but still can give your business the benefits of one. However, it is important to choose a bookkeeping method that is right for your business.
Now is where the fun begins, we begin bookkeeping! Keep track of your day to day expenses and revenue through your chosen bookkeeping method. You will begin to see the day to day on where your money is coming and going allowing you to fine-tune to push towards profitability. This tip aims to encourage you to keep a close eye on your bookkeeping and be open to adjustments to the way your business is run. This way, you can get the most out of the time invested.
This is a quick and simple tip. Keep your receipts! It will help when it comes to tax time or if you happen to find any inconsistencies in your expenses. While this is a part of bookkeeping, it is important enough to warrant its own tip.
While generally, it’s easy to keep track of the ins and outs of your financials through your business’ bank account, it’s nowhere near as comprehensive enough as it should be. You need to have every financial record you have, including transaction records, receipts, invoices etc. in one place so that you can easily monitor and manage them. Having everything in one place also makes it easy for tax planning as you won’t have to look far if something’s missing.
There are a number of cloud accounting software you could use for this purpose, some free but mostly paid but it’s also a good idea to keep an offline backup and a physical record if there are any. Before you set this up, however, it might be a good idea to familiarise yourself with basic accounting terms to help you with categorisation. It is important for example, to separate your expenses into a variable, fixed, intermittent and discretionary to see just where most of your money is going.
Mixing up invoices and receipts is an all-too-common way for small business owners to mess up their books. A simple piece of accounting advice to follow is to know the difference between the two.
An invoice is a bill that’s sent to customers after they’ve received your services. Think of invoices as detailed bills that should outline everything the customer has received from your company. An invoice reminds customers that they owe you money. They’re helpful for speeding up cash flow, keeping financial records, and ensuring that you’re getting paid.
A receipt is a proof that a transaction happened. It’s what you give your customers after a transaction is complete.
Mixing up receipts and invoices can make accounting a nightmare. If you can’t tell what’s completed and what’s in progress, you’re going to run into a lot of trouble when you’re trying to balance your books.
Continuing from the point above, the next step is to put those records you’ve kept into their proper place and sort them by date. Physical receipts have to be scanned first to ensure that they’ll be saved for posterity and to ensure that your digital and physical receipts can exist side-by-side without you having to switch over from your computer and your ledger constantly. Additionally, adding notes on the receipt itself to remind yourself what the receipt was for could help you whenever you decided to audit your books in the future.
If you are invoicing for work completed or services provided but not receiving the funds within a reasonable timeframe, then perhaps it is worth reviewing your trade terms. For example, if you have terms of 14 days for a client to make the payment but they are generally paying in 21-28+ days, perhaps you should look to receive a percentage upfront to improve your cash flow?
A brilliant software to consider is Practice Ignition which can make invoicing smooth and simple. It is worth speaking to your accountant/accounting specialist for more information as it is a game-changer.
Figuring out what payment methods your customers can use is not as simple as it seems. There are so many payment services that you can implement into your online store that it can be a little overwhelming. Beyond standard Eftpos and Credit Cards, you should look at incorporating other online payment methods to provide options for your customers. A few good examples are PayPal and Apple pay. When a customer pay through these methods, PayPal or Apple, or whatever other online payment providers you use, takes a small cut. This may seem bad, and you want to be receiving as much money as possible. However, a lot of these services are expected by customers. They offer a secure payment method that customers trust. It is up to you to decide what is best for your business.
Kindness might be its own reward, but it could also lead to some tangible tax benefits for your business. Assuming your donations are in line with the requirements set out by the ATO, always make it a point to contact the recipient and request a receipt of the donation. It might seem somewhat boorish to ask for evidence of your good deed, but notable charity organisations normally provide these services so don’t be self-conscious about asking for this.
Essentially, the P&L statement is the easiest way you can track how well (or God forbid, how badly) your company is doing. If you’re just starting out, doing monthly P&L statements is a good idea to see whether your business is moving in a favourable direction or not. For businesses that are more on the stable side or businesses in industries that are marked by periods of inactivity, doing quarterly or yearly statements might be preferable.
By comparing P&L statements from two different periods, you can see the progress, or again regress, and your company has made in the intervening time. When or if your business has recently undergone a sizeable change, a P&L statement is also useful in tracking the effect of that change in terms of numbers. While it’s more comprehensive than the balance sheet and cash-flow statements, it still doesn’t paint a whole picture of your company but using all three in combination should be able to give you an in-depth look at your company’s performance.
Time and time again, the hot topic of cashflow is discussed. Without cash, we cannot pay our creditors, employees, or ourselves!
Our advice? Request that your accountant provides a complete financial analysis of your small business. By tracking and understanding your expenses, you can set goals and align KPIs to achieve growth and ensure you have enough cash to meet all your obligations.
When it comes to small business accounting tips, education is everything. The more you understand the numbers in front of you, the greater your odds are at managing them well.
As you perform weekly and monthly financial reviews, consider producing a cash flow statement. These statements give you a broader understanding of cash movement within (and outside) of your company. A cash flow statement essentially monitors income direction. It also includes the element of time, enabling you to visualise payment cycles and seasonal expenses.
Cash flow statements can give you the knowledge you need to anticipate expenses and more appropriately allocate income. They are also useful when building financial trajectories.
You don’t have to generate a cash flow statement, however, in order to understand monetary motion. Simply using the right technology can help you get a holistic vision of how cash is functioning in your business model.
If you choose to automate your bookkeeping services, for example, you’ll be able to visualise metrics and data about cash movement easily.
Something as simple as opening an additional bank account for your tax obligations can ensure that you always have enough funds present when debts fall due. Best practice would be to transfer the payroll obligations immediately into this account after each pay run to prevent the usage of funds unnecessarily.
This is where a professional Accountant will come in handy. They can help you understand all your tax obligations. Do you know when you need to begin adding GST to your products? Or how much you can get back in tax returns? Possibly not but, by using a professional accountant, you can help maximise your return come tax time and avoid costly pitfalls.
If you are doing your own taxes, you may be familiar with the processes and the documents needed. But, keep in mind that business tax may differ from personal income tax with different rules, regulations and claims you are eligible to make. A basic understanding of the tax requirements of a business is crucial, so be sure to consult a professional tax return accountant, so you know exactly what you need to do.
At first, while you are a one-person-show, you may not need to worry about a payroll system. However, you may grow and find that you need to employ a part-time employee to assist you. Now you will need a payroll system. You will need to establish a payroll schedule and ensure that you are withholding the correct taxes. If you have hired an accounting service or an accountant, they will be able to help you set this system up utilising the latest software like Xero. If you are on your own, consider payroll software as that will make the entire process far simpler by automating it.
Each year you should look over your business and marketing plans. Review your previous year, see if you hit your goals, and set new ones for the next year. Set up financial goals and prepare for the next year. This is an obvious tip, but something some businesses do not do. Planning for your future is the key to success and so should not be taken lightly.
Maybe you have begun to expand into new overseas markets. Now you may have to begin looking at import taxes and any other requirements for trading within that country. Begin by talking to an accountant. They can help you understand all the taxation requirements and can help prepare your business’s financial plan for the expansion.
Along with reviewing your business plan, you should also review your licenses, insurances and registrations. You may find that there are registrations or licenses that you no longer need or new ones that you do need. Insurance prices could also shift. By reviewing these three items each year, you could potentially save money or prepare for increased expenses.
Don’t be afraid of questioning your accounting methods. By questioning your methods, you could find that what originally worked well for your business no longer does. This could be caused by the growth of your business or simply changing technologies. If your business has begun to grow rapidly and you are still doing your accounting, look into hiring an accounting service or an accountant.
Take the time to perform a review for your bookkeeping and accounting records at the end of each quarter. Observe any trends such as growing or declining sales and customer increase and discuss these with your accountant. They can help you become better prepared for future capital needs, such as expansion and/or buying new equipment.
Small business often only requires bookkeeping service from a few hours a week to a few days a week. From sole traders to companies, partnership and trusts, ITP The Income Tax Professionals can help in your small business whatever your needs, your size or your business structure.
This brings us to the final tip. A good accountant will help you make money, or at least show you where you are losing it. They can help you streamline your accounts and may even reduce some of your own stress. While it may seem like unnecessary extra expenses, it is well worth it in the long run. If you need a good accounting service, contact Link Strategies and see where we can take your business.
If you decide to use software for your accounting needs, make sure you still keep a copy of all of your receipts, either physically or digitally. This way, you can go back and verify everything if you see any discrepancies when you go to balance your books.
We combine the use of advanced software with the guidance of accounting professionals. Our customers benefit from a team of trusted, in-house experts ready to meet your accounting needs.
Our powerful software integrates with a variety of accounting software partners, such as Xero and Quickbooks, to automate monthly reports and free you to focus on the success and expansion that you strive for with your small business.
When you are ready to hand off the chore of accounting and focus on the business you love, we are your financial headquarters. We have powerful software that can save you time and money to get started today.
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