Brendon Pack | 9 Accounting Tips to Safeguard Your Small Business

 

Small business owners wear many hats and have a lot going on as they build their businesses. So, it's understandable that some tasks and priorities are pushed to the side in favor of what they deem to be more pressing aspects of their work. Typically, accounting and financial tasks are among the priorities relegated to the sidelines, but they shouldn't be.

 

You should always prioritize tax and financial considerations, as they can significantly impact your liabilities owed to the IRS. That's why we created this handy list of accounting tips for your small business. These tips touch on some of the most critical accounting tasks and processes you should be aware of, helping to give you vital financial insights and an edge over competitors. 

 

9 Small Business Accounting Tips

Expenses. While it isn't mandatory, separating personal and business expenses has numerous advantages. Instead of rushing and stressing during tax season, which takes away from your core business activities, you'll be organized and ready to claim every deduction your business is entitled to at tax time. As you begin the separation process, business bank accounts, business credit cards, and phone lines are great areas to focus on.  Brendon Pack

Budgeting. If you've just established your business, it's understandable that you have yet to create a budget. However, creating a budget detailing your business revenue and expenses for a certain period should be prioritized as soon as possible. You always want to have a firm grasp of your business's financial health, and budgeting helps you achieve that goal.

Bookkeeping. Another method to better understand your business performance is to track all of your income and expenses, which is called bookkeeping. You'll need a high attention to detail and a lot of time to do your own books. Bookkeeping can give you the real-time data you need to make important business decisions when done correctly. Make a mistake, and it throws off everything that depends on your bookkeeping system, including financial forecasts your accountant is tasked to generate. You might be able to handle your books initially. Still, as your business grows, the process becomes more complex and time-consuming, which is why so many owners and entrepreneurs outsource this work to professional bookkeeping services.  Brendon Pack

Business records. Recordkeeping's scope goes beyond bookkeeping’s narrower focus. Recordkeepers document and store financial records, contracts, and legal documents, among other types of records. If you're just starting out, focus particularly on tracking your expenses, gross receipts, and fixed assets. You should store these records for a minimum of three years.

Accounting methods. You can choose to track your transactions using one of the two accounting methods: cash or accrual. Use accounting software to help manage and automate whichever method you choose.

 

If you use the cash method, you will add revenue when your business receives cash and deduct expenses when your business pays an expense. While the cash accounting method is more straightforward, it has a downside. This method doesn’t include accounts payable or accounts receivable.

 

If you use the accrual method, each business transition matches its expenses and revenue. You’ll list your business expenses and revenues as they occur, meaning you’ll list expenses when paid and revenue when earned. While the cash accounting method doesn’t use accounts payable or accounts receivable, accrual accounting does. This gives you a more complete view of your business's financial standing.

Maintaining cash flow. Maintaining the health of your business and creating sustainable growth requires careful cash flow management. You have to spend money to make money, which means ensuring you have funds available when you need them. That’s where your cash flow statement comes in. It is a document collecting all of your business data from day-to-day operations to report on your liquidity and financial health at any given moment.

Investments and credit. How you manage your financial information can impact your access to investment capital, loans, and credit. Before you're fortunate enough to receive additional funding, individuals and institutions will want details about your business's financial health before they invest. They will most certainly want to see your books, among other documentation, providing further incentive to maintain accurate and detailed financial materials at all times.

Tax compliance. Your business should always strive to remain tax-compliant to avoid penalties and increased IRS scrutiny. Business owners who handle their own financial work risk tax non-compliance, which includes claiming the wrong tax credit or tax deduction, among other issues non-compliance can impact. A simple mistake can lead to numerous headaches, which is why so many businesses work with financial experts to remain compliant. This peace of mind allows owners to focus on building aspects of their businesses while their financial experts handle the rest.

Financial forecasts. Financial forecasting helps you predict future business performance based on past financial information. It can also assist you with predicting your budget and revenue. There are two types of financial forecasting: qualitative forecasts and quantitative forecasts. If your small business lacks historical data, you may prefer qualitative forecasts. You may prefer quantitative forecasts if you need to examine extensive historical data to figure out patterns or trends. Financial forecasting is one area where a dedicated accountant or CPA can make a sizable impact.

Work With Small Business Accounting Professionals

These accounting tips provide you with a foundational understanding of essential financial tasks like bookkeeping, business practices, and tax compliance. Without them, your business is unlikely to reach its full potential, which is why so many owners and entrepreneurs work with 1-800Accountant, America’s leading virtual accounting firm for small businesses.

 

Whether it's business tax preparation, tax advisory, or any of our professional accounting services, we have the affordable pricing solutions you need to ensure your business remains compliant. Schedule a quick consultation – usually 30 minutes or less – to learn more.