Small Business and Startup Accounting Tips

Small Business and Startup Accounting Tips Proper management of a business’s finances, and having someone dedicated to that process

10 Plan for major investments. By consistently tracking expenses and revenue, the business can identify the best time fo...
02/02/2023

10 Plan for major investments. By consistently tracking expenses and revenue, the business can identify the best time for large investments and establish the credit it may need to cover the cost. Business credit cards can help an organization establish a credit history so it has a better chance at qualifying for financing (and optimal financing terms), including lines of credit and loans, when it needs more capital. Securing these funding sources are important to a company’s overall financial health—45% of businesses with excellent financial health received loans or credit cards from a bank, compared to just 3% of companies with poor or below-average financial health, per the Federal Reserve study. Additionally, credit cards offer perks for the business such as business rewards or travel rewards.

9 Keep an eye on certain high-cost expenses. Labor costs are the largest expense for most small businesses, and inventor...
02/02/2023

9 Keep an eye on certain high-cost expenses. Labor costs are the largest expense for most small businesses, and inventory is often another. To reduce labor expenses, many small businesses outsource work to contractors that bill at an hourly rate. This can be cheaper because the contractors may not need 40 hours/week to complete your work and they don’t require benefits. Time-tracking software can help leaders understand how much certain tasks are costing the business, enabling the business to better budget and find ways to control these expenses. Companies can lower inventory costs by tracking inventory carrying costs, inventory turnover ratio, amount lost to obsolete inventory and other key metrics.

8 Separate accounting functions. Public companies must follow regulations that require controls to ensure segregation of...
02/02/2023

8 Separate accounting functions. Public companies must follow regulations that require controls to ensure segregation of duties. Small businesses are more likely to have a single person handling many accounting functions, but this creates an environment that introduces risk of accounting fraud. However, owners can minimize this risk by putting some simple controls in place. One effective control is to ensure the same person who cuts the checks doesn’t sign the checks and reconcile the bank statements.

7 Optimize AP terms and invoicing. To hold on to cash longer, take advantage of credit terms from key suppliers. Pay bil...
02/02/2023

7 Optimize AP terms and invoicing. To hold on to cash longer, take advantage of credit terms from key suppliers. Pay bills on a schedule that maximizes your cash flow, and when possible, pay early with vendors that offer a discount for doing so. To ensure steady cash flow, do everything possible to encourage on-time payment from customers. That could include offering discounts for early payment, running credit checks on potential customers before doing business with them and, when necessary, revoking credit terms. Accounting software that can automate invoicing processes by automatically sending out bills and follow-up reminders could also help prevent outstanding invoices from piling up.

6 Keep the books up to date. Without keeping the books current, owners and employees don’t have a clear picture of the c...
02/02/2023

6 Keep the books up to date. Without keeping the books current, owners and employees don’t have a clear picture of the company’s financial state. Automating receipt and invoice capture is one way to ensure the books are always up to date. Another important step is to link bank accounts with your accounting software. Businesses can download credit card and bank statements and manually import them as CSV (Excel), but some accounting systems offer a plug-in that will pull information from your bank account and automatically retrieve daily bank transactions and statement files. The business can define the matching rules in their system to reconcile the statements, which makes the reconciliation process much easier. Some accounting software offers a direct integration to banks, so the business owner can manage and complete all banking tasks in the accounting system without also logging into their bank account portal.

5 Choose an accounting method. Every small business and startup must pick a set of rules for determining when to report ...
29/01/2023

5 Choose an accounting method. Every small business and startup must pick a set of rules for determining when to report income and expenses. This provides a consistent accounting method for tax purposes. In general, under changes put in place by the Tax Cuts and Jobs Act, small businesses with $25 million or less in annual gross receipts for the three prior tax years can choose between accrual accounting and cash basis accounting. However, because Generally Accepted Accounting Principles (GAAP) require accrual accounting, many companies prefer this method.

4 Keep accurate business records. Recordkeeping is one of the most important responsibilities for a small business owner...
29/01/2023

4 Keep accurate business records. Recordkeeping is one of the most important responsibilities for a small business owner. Accounting software can automate much of the recordkeeping process and digitally store financial records. That makes it easy to document the amount, time, place and business purpose of a transaction when you claim expenses as tax deductions. IRS requirements mandate keeping the records, in general, for at least three years—accountants recommend keeping them for seven years. Records a business needs to maintain are listed in detail in IRS Publication 583. But a few worth calling out for small businesses and startups include:

Gross receipts are the income you receive from your business, and records include: Cash register tapes, deposit information (cash and credit sales), receipt books, invoices and Forms 1099-MISC.

Expenses are the costs you incur to operate your business, and records include: canceled checks or other documents reflecting proof of payment/electronic funds transferred, cash register tape receipts, account statements, credit card receipts and statements and invoices.

3 Develop a budget. One of the first steps in creating a business plan is coming up with revenue projections and a list ...
29/01/2023

3 Develop a budget. One of the first steps in creating a business plan is coming up with revenue projections and a list of anticipated expenditures, and then comparing that budget to actual expenses and revenue. A study by The Federal Reserve Banks of Chicago and San Francisco reported that more than 60% of businesses with excellent financial health always built a budget and, subsequently started a separate bank account for payroll. Less than 5% of businesses with poor financial health engaged in these two financial planning and management practices.

2 Get bookkeeping software (and a bookkeeper). Bookkeeping is the organized process of tracking all income and expenses....
29/01/2023

2 Get bookkeeping software (and a bookkeeper). Bookkeeping is the organized process of tracking all income and expenses. It’s a critical component of financial management that ensures business owners have the information they need to make sound business decisions. For many small business owners, accounting is not among their skill set. Hiring a person dedicated to the task or, for smaller businesses, outsourcing the function is often a wise investment.

1 Separate business and personal expenses. One of the first steps a small business should take is opening a business ban...
29/01/2023

1 Separate business and personal expenses. One of the first steps a small business should take is opening a business bank account, which it can do after obtaining its Employer Identification Number, or EIN (sole proprietors can use social security numbers). Business bank accounts offer several advantages over personal ones, including:

Making it easier to track and substantiate business expenses to take advantage of tax deductions.
Offering personal liability protection by keeping business funds separate from personal funds.

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