Small business owners make decisions every day that impact the financial well-being of the business and it’s important to keep accurate financial records so you can have a firm understanding of the health of your business.
Consider a Part-Time Accountant
Many small businesses are able to keep track of their income and expenses without the need of a full-time accountant, however, it’s a good idea to hire an accountant to help you with your taxes and financial reporting to the government. Depending on your state laws, the type of business and level of income, you may be required to file monthly, quarterly or annual reports.
An accountant can help you determine when and to whom you need to file. If you decide to use an accountant, it’s a good idea to meet with him or her early on to find out what records you will need to turn over to them and when.
Choose Your Software
Spreadsheet software like Microsoft Excel or Google Sheets often work well enough for small businesses. You may need something more robust, like QuickBooks, if your business is more complex. Another reason to consider an accountant is that they can often give you a recommendation on what software will work best for your type and size of business.
Choose a Method of Accounting
Every business has to make a choice between two types of accounting when starting to keep financial records – cash or accrual accounting. There are advantages to both, so it’s good to understand the differences.
With cash accounting, nothing is recorded until cash actually exchanges hands. If this sounds similar to how you manage your checkbook, it is. You wouldn’t record income until you actually have the money from your customer, and record expenses when the check is written and taken out of your account.
With the accrual method, income and expenses are recorded when they are obligated to be paid. In other words, if a company performs a service in October and bills a client for it, it is recorded in “accounts receivable” in October. The customer may not actually pay the bill until November. Using the accrual method requires what is known as double-entry bookkeeping because it is recorded when the bill is sent and when the payment is received.
By starting off with a basic understanding of small business accounting, you will be able to have a better grasp of how well (or poorly) your business is performing and be able to make more informed business decisions to help your business prosper.