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15-Aug-2020 By - Anna Eydlish

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.

If you run a very small business, you might be able to manage your bookkeeping with accounting software, saving yourself time and money by using free options. However, managing your own bookkeeping means you're in charge of keeping your finances in order, storing records and creating necessary statements.

An accountant is a professional who handles the bookkeeping and prepares financial documents like profit-and-loss statements, balance sheets and more. They perform audits of your books, prepare reports for tax purposes, and handle all the financial information that's part of running your business.

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The processes of tracking, documenting, and evaluating your company’s financial transactions are all part of the accounting for small businesses. It takes the raw data you provide and turns it into an understandable statement about your company’s profitability.

Accounting may be one of the more laborious aspects of running a business, but it is essential to do so in order to avoid problems with cash flow and mountains of paperwork.

How to Do Accounting for Small Business?

Accounting for small businesses entails maintaining detailed records of all of the company’s income and spending and precisely extracting monetary data from the many transactions that take place inside the company.

Especially in the beginning phases, this is a crucial duty that helps owners of small businesses keep better track of their finances and manage their money more efficiently. Accounting for small businesses not only assists with the creation of invoices and the processing of payroll, but it also helps owners stay informed about their companies’ past and current performance.

Open a bank account

After properly registering your business, you will need a place to keep the money you earn from the business. Keeping your financial data organised and distinct with the help of a separate bank account will make your life easier come tax time. Additionally, it safeguards your property in the terrible event that you become the target of a lawsuit, an audit, or bankruptcy proceedings. In addition, if you desire money in the future, whether from creditors or investors, having solid financial records for your firm might enhance the probability that you will be approved.

You should begin by creating a company checking account, then go on to any savings accounts that will assist you in organising your finances and making tax preparation plans. For instance, you may open a savings account and direct a certain portion of each paycheck into it to serve as your self-employed tax withholding. A decent rule of thumb is to save twenty-five percent of your income however, estimates that are more conservative for high earners could be closer to thirty percent of their income.

To continue constructing your credit history, the next step is to investigate opening a credit card account for your company. Having a good credit score is essential in order to obtain finance in the future. In order to prevent the mixing of personal and corporate funds, businesses are required to make use of a specialised corporate credit card.

Do your research before approaching a financial institution with the intention of opening an account. Investigate your options for business accounts, and examine the various pricing schemes. In addition, you should pay closer attention to what you’ll owe, as corporate checking accounts often have larger fees than personal checking accounts do.

You will need a business name in addition to maybe registering your company with the relevant authorities in your state or province before you can create a bank account for your company. Check with the financial institution to find out the documentation you need to bring to the appointment.

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Track your expenses

The efficient and precise recording of company expenses serves as the bedrock of good business bookkeeping practices. It is an important step that enables you to monitor the expansion of your company, construct financial statements, maintain a record of deductible spending, submit tax returns, and authenticate your files.

The ability to accurately track and record company transactions is essential to the development of a robust bookkeeping system for small businesses. You will be able to monitor your deductible costs (tax deductions), compile financial statements and tax returns, and keep track of the expansion of your company with the assistance of the source documents.

It is essential to keep in mind that the only expenditures that should be reported are those directly related to the firm’s operation. Examples of business documents include invoices, cancelled checks, purchase orders, and several other types of paperwork.

You will be eligible for several one-of-a-kind tax incentives, and starting your business from home is a terrific way to reduce overhead costs to a minimum. For example, you are eligible to take a tax deduction for the portion of your house that is used for business, as well as for the cost of your home internet, mobile phone, and transportation to and from work places and to do errands related to your business.

Any expenditure that is utilised partially for personal purpose and partially for business use must indicate the mixed-use nature of the expenditure. For instance, if you only have one mobile phone, you can subtract the proportion of time that you spend using it for work-related purposes. You can deduct the whole cost of your gas mileage as a business expense as long as you keep all of your documents and maintain a journal of the business miles you drive (including where you are going and the reason for the trip).

Develop a bookkeeping system

It would be important to clearly understand what bookkeeping is and how it varies from accounting before we go headfirst into the process of setting up a bookkeeping system. Recording financial transactions, classifying those transactions, and reconciling bank statements are the daily tasks that make up bookkeeping.

Accounting is a higher-level procedure that analyses the company’s development and provides meaning to the information gathered by the bookkeeper through the construction of financial statements. You, as a new owner of a business, will need to decide how you wish to handle the management of your books:

  • You can do everything on your own and use accounting software such as Quickbooks, MYOB, or Xero. You also have the option of utilising a straightforward spreadsheet created in Excel.
  • You can work with a bookkeeper who is either locally based or located in the cloud on a part-time or outsourced basis.
  • When your company reaches a certain size, you will be able to make use of the services of an in-house bookkeeper and/or accountant.

Because there are so many alternatives available, you should have no trouble locating an accounting method that is suited to your specific requirements.

Keeping tabs on sales invoices, accounts receivable, customer payments, and debtor management is part of our bookkeeping services, which may help enhance your company’s cash flow.

Accrual basis

Although the cash basis of accounting may be simpler to use, most organisations opt to record transactions using the accrual basis of accounting instead. Using this approach, you will record money whenever you make a sale and costs whenever they are incurred. This is true irrespective of whether you paid cash for the goods or service or received monetary payment for it. You must have a double-entry accounting system and make two entries for each transaction you complete.

Set up a payroll system

A great number of internet shops had their beginnings as one-person operations. When you’ve reached the stage where it makes sense to bring in outside assistance, you first need to determine whether the person in question is an employee or an independent contractor.

You will be required to establish a payroll plan for your employees and check that the appropriate taxes are being withheld from their pay. A plethora of services available may assist with this, and the payroll functions are included in most accounting software packages.

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Create an adjusted trial balance

Adjusting journal entries are necessary in order to properly account for recurring costs and revenues when utilising the accrual method of accounting. For instance, if rent is paid in whole for the entire year, a monthly adjustment entry has to be made so that the expenditure that has been incurred may be recognised. This guarantees that the revenue and spending for the period covered in the financial statements are matched up appropriately within that period.

After the adjusting entries have been completed, a trial balance that has been adjusted will be created in order to verify that the debits and credits correspond to the adjusting entries. The most accurate record of your company’s financial operations is a trial balance that has been modified.

Investigate import tax

You could be intending to acquire and import items from other nations to sell them in your store, but this will depend on your business model. If you run a dropshipping business, it is important to be aware that, in most cases, you will be required to pay taxes and customs on the items that you import. These are the charges that are incurred for importing items into your nation.

In addition, if you are importing items, a duty calculator may assist you in estimating the fees that your own company and planning will incur for the associated expenditures.

Determine how you’ll get paid

You will want a method to take payments as sales begin to come in regularly.

If you wish to take credit card payments outside of Shopify Payments, you will either need a merchant account, or you may use a third-party payment processor like PayPal, Stripe, or Square. Shopify Payments is not required for you to accept credit card payments. Instead, your company has to have a special kind of bank account known as a merchant account in order to be able to take credit card payments from clients.

Fee structures might change depending on the payment processor that you select. For example, some processors impose an interchange plus rate, which generally amounts to around 2.9 percent plus $0.30 for each transaction. Others provide a monthly membership plan that allows for an unlimited number of transactions for a flat rate, while others charge a flat fee for each transaction. You may use this list to assist you in finding a payment gateway that is compatible with your area if you consult it.

Establish sales tax procedures

Because of the rise of eCommerce, selling to clients located in other states and even other countries is now simpler than it has ever been. However, despite the fact that this is a fantastic opportunity for firms who have development objectives, it adds restrictions about sales tax that are unclear.

When a consumer makes a purchase at a traditional brick-and-mortar retail business, they are required to pay the sales tax of the state or province in which the store is located. This is the case regardless of whether the client is a local resident or a tourist from another part of the world. When you sell things online, however, your consumers could be in completely different towns, states, provinces, or even nations than you are.

Accountant At Work

Determine your tax obligations

Depending on the organization’s legal form, a company may have different tax requirements. For example, on your income tax return, you will need to include any money you made from your business if you are self-employed (sole proprietorship or partnership). On the other hand, corporations are treated as separate tax entities and are subject to taxation in a manner that is independent from that of their owners. As an employee, your income from the corporation will be subject to taxation.

People who are self-employed are responsible for deducting taxes from their earnings and sending those funds to the government. This is in place of the taxes that an employer would typically withhold.

Calculate gross margin

The first step in increasing your overall revenue is to work on increasing the gross margin at your retail establishment. In order to compute the gross margin, you need to have an accurate understanding of the production expenses associated with your product. To better grasp this topic, let’s take a moment to briefly discuss the concepts of cost of goods sold (COGS) and gross margin.

  • COGS, or cost of goods sold, refers to the direct costs that a corporation incurs in the process of manufacturing the goods that are then sold. This takes into account the price of both goods and direct labour.
  • Gross profit margin This figure shows the entire sales revenue that the company retains after it has deducted all of the direct costs associated with the production of the product or service.

Individuals, businesses, trusts, partnerships, and retirement funds can benefit from the trustworthy and knowledgeable tax preparation services EWM Accountants offers.

Apply for funding

There are various circumstances in which a developing eCommerce firm can require the assistance of other parties in the form of external business funding. This assistance could come in the form of a line of credit, investors, a small business loan, or even a business partner.

For instance, you can have an unexpected sales drop because of factors beyond your control in the outside world. Alternatively, you might require a cash boost during sluggish periods in a seasonal business and find that you need it then. It is common for companies with ambitious expansion plans to require more money to make expenditures in new product development, inventory, retail shops, recruiting, and other areas.

Keep in mind that to obtain a loan for your small business, you will certainly be required to present financial documents, including at the very least a balance sheet and an income statement, and potentially even a cash flow statement.

However, before you put your name on the dotted line for the debt, you need to be sure that the figures add up. Calculating the loan’s return on investment (ROI) is a smart concept, to put it another way. Calculate the sum of all the costs the loan will need to cover, the anticipated increase in revenue resulting from the loan, and the cost of the interest. You may determine the whole price by making use of our calculator for small business loans.

Find high-quality accounting partners

Small business accountants and financial specialists are able to assist you in regaining command of your finances, regardless of whether you find that keeping your own books is too much work or if you simply need some outside direction. There are a few people who you would want to think about recruiting, including the following:

  • Accountant. A certified public accountant who specialises in work with small businesses can provide guidance and direction in a variety of areas, such as the organisation of your company, the formulation of financial statements, the acquisition of the required licences and permits, and even the composition of a business plan.
  • Publicly Certified Accounting Professional (CPA). In the event of an audit, the only person who is permitted by law to compile an audited financial statement is a certified public accountant.
  • Bookkeeper. The bookkeeper is responsible for maintaining the day-to-day records of the company, including balancing the accounts on a regular basis, classifying the costs, and handling the accounts receivable and accounts payable.
  • Tax preparer. Your tax preparer is responsible for filling out all of the relevant tax forms and may even file them for you. Additionally, they will set up your quarterly tax payments for you.
  • Tax planner. Before you even submit your taxes, these experts will help you optimise them and educate you on strategies to reduce the amount of money you owe in taxes.

Keep refining your methods

Any viable company plan needs to account for ongoing expansion, and expansion requires adaptability. After getting your small business off the ground, it is up to you to regularly examine — and, if required, adjust — how you handle the accounting responsibilities that come your way. Your company’s continued prosperity may be ensured for the long term by developing an effective strategy that enables you to keep your current profitability level and grow your bottom line.

There is no getting around the fact that owning your own business for the first few years may, at times, feel quite overwhelming.

You may avoid becoming bogged down by the technicalities and have more time to focus on the excitement of the adventure if you get off to a good start with an accounting system that encourages development, saves you time, and decreases the amount of work you have to perform.

Ato Taxation Return

Do You Need an Accountant for a Small Business?

If you operate a small business, investing in an accountant’s services might save you a significant amount of time and money. Accountants are able to assist owners of small businesses with a variety of duties, including the following:

  • An accountant can be of assistance to you in the drafting of a business plan during the process of forming your company.
  • You should consult with us on the entity structure of your company.
  • Assist you in acquiring the proper licences, such as business licences, permits for collecting sales taxes, and employment accounts
  • When you do not want to pay for the bookkeeper’s services regularly, it is best to set up your accounting software and chart accounts on your own.
  • Take care of compliance and difficult problems related to sales tax.
  • Take control of complicated labour costs, such as pay and labour compliance difficulties, which have the potential to bring down even the most prosperous enterprises.
  • Assist you in satisfying the standards imposed by lenders or licencing authorities.
  • Keep records of the inventory according to the dates on which it was acquired, the stock numbers, the purchase prices, the dates on which it was sold, and the selling prices.

Small company owners who do not have the financial resources to engage an accountant may want to consider the possibility of automating their accounting procedures using one of the many cloud-based accounting software tools currently available.

Most of these programmes handle the fundamentals of accounting, including payroll, payments, and invoices. So you’ll have an easier time creating basic financial statements and keeping detailed records with the help of this programme.

Whether you are searching for Business Accounting Services or a start-up business accountant, you can rely on us to help set up your accounts. We are available for you whenever you have either of these needs.

Guest post by : Anna Eydlish Form -

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