Inspiring thoughts from
OUr CEO, Sarah Gould
OUr CEO, Sarah Gould
You went out on a limb and started a small business. Your sales have been good, and you’ve got plenty of loyal customers. Now, you’re wondering what else you can do to set your company up for success. The answer? Commit to smart accounting practices.
If you think of your business as a house, accounting practices are the foundation. Without good, strong financial practices, it’s impossible to grow sustainably or to enjoy a strong, solid company.
Fortunately, we’re here to help.
In this blog, we’ll break down some of the accounting practices our team recommends for small businesses and help you understand how to set your company up for financial success.
Let’s dive in.
5 Smart Accounting Practices Your Small Business Should Implement
Follow these tips to ensure a strong financial foundation for your business:
1. Keep business and personal finances totally separate
Nothing is as unprofessional (or confusing, come tax time) as blending your personal and business finances.
If you run your business as a sole proprietor, it can be challenging to understand why this matters so much. You and your company are technically one in the same, right?
Still, it’s essential to separate business and personal expenses. Buying personal items with business funds will cause cash flow issues and can lead to audit or tax filing complications.
With this in mind, we recommend opening separate bank accounts and credit cards for your business. This will make doing your business taxes easy and help you avoid financial snafus.
2. Double-check your accounting method
When you opened your business, you either chose or fell into an accounting style. As it turns out, though, there are many different types of accounting, including Financial Accounting, Management Accounting, Public Accounting, and Tax Accounting, to name a few.
As a small business, the top two primary accounting methods typically utilized are; cash accounting and accrual accounting.
In cash accounting, companies recognize expenses and revenue as money changes hands. This is a standard accounting method for freelancers and other small businesses with limited accounting activity each month.
On the other hand, the accrual method is the accounting option most CPAs recommend. This style of accounting recognizes revenue when it’s earned and expenses as they occur.
In other words, it matches revenues against expenses in the same time period, so it is easier to know the health of your business monthly. That said, it can be more complex than the cash method.
As such, we recommend hiring an advisory service to help you evaluate your current accounting method and make changes if need be.
3. Develop a plan for managing income and expenses
Most of your financial transactions as a small business will come from income and expenses. The better you handle these two types of transactions, the smoother and more efficiently your business will run.
Here are a few basic skills you’ll need to master:
4. Reconcile your bank statements regularly
Lots of us trust our banks to be accurate and detail-oriented, but mistakes do happen. Because of that, it’s important to be proactive about your bank accounts. Instead of letting statements pile up, download them regularly and review them for accuracy. Make sure there are no unauthorized purchases or disbursements, and reach out to your bank promptly to resolve any issues.
5. Plan for taxes during the year
Instead of only thinking about taxes at tax time, plan for them throughout the year. Hire an accounting service and stay in touch with them throughout the year to ensure you’re correctly maintaining records and paying estimated taxes.
That way, when it comes time to file, you’ll have a head-start on the process.
A Stronger Small Business Starts With Good Accounting Practices
For small businesses, an excellent financial framework is THE key to success. As it stands right now, only 48.9% of small businesses survive five years or more, and 82% that fail typically do so because of cash flow problems. Fortunately, you don’t have to become a statistic.
To set your small business up for success, it’s crucial to adopt strong accounting practices from the get-go.
Things like monthly bank statement reconciliation, intelligent tax planning, proper management of income and expenses, and separation of business and personal income will all go a long way toward helping you build a strong, profitable, resilient business.
If you’re not sure where to start, you don’t have to go it alone. Here at Elevated Advisory & Accounting, our team specializes in helping small businesses like yours build a strong financial foundation.
Serving companies in Whitefish, Kalispell, and beyond, we’re here to help you avoid common financial pitfalls and enjoy a sustainable business.
Ready to learn more? Contact us today.
1/16/2023 05:14:08 pm
You can utilize either cash basis accounting or accrual accounting as your company's regular accounting method. Cash accounting is often only advised for companies that solely accept cash payments as payment for goods and services. Cash accounting records transactions at the time cash actually changes hands. Regardless of when payments are paid or received, the accrual method applies the matching principle to record revenues and costs in the period in which they are incurred. Even though it might be a little more challenging, the accrual technique is typically the best option for any company that will be billing customers.
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126 1st Ave West
Kalispell, MT 59901