We love working with small businesses and our ultimate goal is to help them succeed, so we have put together a series of powerful small business tips. You won’t get far without sound accounting practices.
So you have started your very own small business. Youâ€™ve done some homework, registered your company with the state and filed all the paperwork necessary to be a legit company. Well done! Getting this far isnâ€™t easy, but paying those registration fees and buying that domain name means you’re committed now. Before you get too excited about serving customers and bringing in all that money you are planning on making, it is probably important that you figure out how you plan on managing that money and the expenses that come along with running your business.
A love of accounting and bookkeeping probably isn’t what inspired you to start a business, but it is part of the whole deal, and an important aspect if you want to be successful in the long run. To help get you started, we have put together a brief, but powerful collection of three accounting tips for small businesses. Take these to heart if you want to successfully manage the money behind your company while avoiding common pitfalls that can end up costing you down the road.
Small Business Accounting Tip #1: Separate Personal and Business Finances: Open a Bank Account & Credit Card
Before you start spending money on your business or taking money from customers or clients, it is important that you set yourself up with a separate business bank account and credit card as well as a savings account or two that can help you organize your funds. This will help keep your businessâ€™s finances separate and easier to manage as you go.
Youâ€™ll want to do a bit of research before picking just any bank to run your small business finances through. Many banks have fees, and some are higher than others. If you want to avoid fees altogether, donâ€™t mind not having a physical bank location to go to, and wonâ€™t be dealing with cash, then there are online banks to choose from. This route can be cost effective and usually allows you to set up synchronizations between the online bank systems and your accounting software (such as QuickBooks). However, many large banks have their own software and apps that allow similar integrations, so be sure you weigh the pros and cons. Also be sure to review which documents you will need on hand when applying for an account. Most banks will need certain proofs of the business registration as well as proof that you have the authority to open an account for the business.
To make things even easier to track, itâ€™s a good idea to use a separate credit card where you put all expenses. This can help you start to build business credit as well as make managing and tracking your expenses clean and simple. Plus, there are plenty of business credit cards out there that offer rewards!
Small Business Accounting Tip #2: Determine How You Will Manage Your Books
Youâ€™ve probably managed your own finances for a long time now. Maybe you have even managed some financial aspects at another business you worked for in the past and are now thinking to yourself, â€śI think I can handle setting up my businesses bookkeeping on my own.â€ť Even though it can be important to keep costs at a minimum when you are getting started, you should consider all the risks before accidentally saving the wrong dollar.
The reality is, if you have registered your small business with the state and arenâ€™t simply a sole proprietorship, your taxes can be dizzyingly complex. Since you will likely be having your tax accounting handled by an agency or CPA anyway, you might want to consider asking for some professional advice on what would be the best way to manage your books so they will be in good shape to submit when it comes time to do your taxes.
If getting some consulting from an agency or CPA ends up in landing you with a fee that is a bit rich, there are plenty of highly qualified contract bookkeepers and accountants out there who would be able to help get you on the path of properly structured books for your business. In fact, if you are able to get a contractor who is proficient enough in certain bookkeeping software (like QuickBooks) they may be able to set you up with automating certain tasks and/or integrating your accounting software with other software your business uses, which could greatly reduce manual data input and management, saving you tons of time and money down the road.
Small Business Accounting Tip #3: Understand Your Business and Personal Tax Obligations
Which structure you registered your business under and filed it as with the IRS will be the determining factor as to what your tax obligations will be at the end of the year (or possibly each quarter). One of the best things you can do for yourself is to try to keep things as simple as possible for as long as possible.
Many small businesses are structured as a Sole Proprietorship, Limited Liability Company (LLC), or Partnership. Under these structures, you are able to claim income from your business on your personal tax returns. On the other hand, if you have set your company up as a corporation, your business will be treated as a separate tax entity and will be subject to taxes independently from your own taxes, which you would then be taxed as an employee of the business.
If you are claiming income from your Sole Proprietorship, LLC or Partnership on your personal taxes, you should be withholding taxes just as your employer would normally do if you were working for another company. If you determine that you will end up owing more than $1,000 in a fiscal year, the IRS will expect you to pay estimated quarterly taxes to avoid potential fees.
These small business accounting tips and highlights really only scrape the surface of things you will need to learn in order to be successful running your own business. The hard truth is that pursuing your financial freedom will come with certain risks that you donâ€™t have to face as an employee; not the least of which is dealing more deeply with the IRS. However, if you learn how to manage these risks with the right set of knowledge, tools and some well-placed expert assistance, there is no reason your business canâ€™t be the success youâ€™ve dreamed it would be.
And remember, we have been helping small businesses thrive for over 30 years. We love the opportunity to provide live phone answering services for small companies so they can focus on mission critical tasks like accounting, bookkeeping, and all the other things that are necessary for success.