Small Business Accounting:

A small business has many moving parts, but one of the most critical areas is accounting. Small business accounting takes time and attention to detail, because if your business finances aren't in order, then the chances of sustained success are slim.

Accounting technology has come a long way, so in many ways, it is easier than ever before for entrepreneurs and small business owners to take control of their accounting responsibilities. Every business owner should be proactive when it comes to accounting and establish a system that works for them. You can use the steps below to help you create a financial framework that will organize the flow of money through your business and help you to avoid the pitfalls of poor money management.

Where to Start:

1. Get a bank account.

It doesn't matter how small your business is, you should have a business bank account that is totally separate from your personal finances. The primary benefit of having a business bank account is that it allows you to pay for expenses and accept payments through an account that can be tracked. You can also access account statements and records so that none of your business' financial activity falls through the cracks.

When you are opening a business account for the first time, look for something that has low monthly fees and useful features like online banking, multiple debit cards, etc.

2. Set up a bookkeeping system.

Bookkeeping is the day-to-day task of recording income and expenses. People used to do this using a ledger, but now you can use tools like QuickBooks or even an Excel spreadsheet with categorized columns for entering daily items. The important thing is keeping track of the seemingly small transactions because they add up. Some small businesses have bookkeepers who update the books on a daily or weekly basis.

3. Track all of your expenses.

When tax season comes, being able to count all of your business expenses against your business income will help to reduce your tax burden. Because of this, it is important to track all of your expenses by keep paper receipts or entering them into a computer system.

4. Send and receive invoices.

Unless you own a retail store or a restaurant, your small business probably charges customers/clients by giving them invoices. You can use invoicing software like Freshbooks, Wave and QuickBooks to send invoices to your customer electronically. By creating the invoice, you have also created a record of money that is owed to your business. When your customer pays the invoice, you can mark it as paid and consider the money to be part of your revenue.

In the same way, other businesses will probably send invoices to your business when you purchase things from them. You can keep these invoices as a record of bills, and mark them as paid after you have paid them.

5. Calculate revenues.

The purpose of accounting, besides keeping an accurate record that complies with the tax system, is to determine how much money your business is (or is not) making. You can do this by calculating your gross and net revenues.

• Gross revenue: Your total sales.
• Net revenue: Your total sales minus your total expenses.

Obviously, your net revenue is the most important number because it is the number that tells you whether or not you made a profit after all of your expenses were paid.

6. Calculate annualized numbers for your business tax return.

Whether you file your business taxes yourself or hire an accounting firm, you need to be able to produce accurate financial information that covers the entire fiscal year. The only way that you can do this is if you have been recording your financial activity all year. At the end of the year, you should be able to summarize your business's earnings, expenses, debts, losses, etc.

Depending on the size, location, and revenue of your business, you may qualify for a number of small business tax deductions.

Final Thoughts:

Small business accounting may not be the most glamorous or exciting part of your business, but there are few things as important to your success as organizing your financial practices. If you need help with your accounting procedures, there are dozens of great software solutions on the market for small businesses. You can check out our article on the 30 Best Accounting Software Services to learn more.

Alternatively, you could employ a fulltime accountant. Read our article on how to find a small business accountant.