Accounting for the non-accountant is often the mainstream issue for small business owners, especially the ones who are more into creativity. Crunching the numbers can appear to be an arduous task. However, keeping track of your cash flows and other important financial details can prove to be the difference between a successful business and one who may close its doors. More than half of the new businesses today close down after its first operational year, and an astounding 90% of them close down after the 5th year.
These statistics are the reason you should take accounting seriously starting day one. For someone like you who is not familiar with bookkeeping, this accounting for the non-accountant guide will help you to develop the right mindset for this job.
Building the right mindset
Having the right approach to whatever you do combine with the right tools is key to getting started. Before you even start the business, you must prepare yourself for handling the accounting tasks of the company. If you can’t afford to hire an accountant, you may seriously consider taking an accounting course and get yourself acquainted with it. Here is a checklist of things you must do at the start.
Know your business category
Tracking income tax expenses and sales comes later while accounting for the non-accountant, and before everything else, you should know the type of your registered company. Either its sole proprietorship, LLC, or a corporation and type will influence your taxes, pay structures, and methods of acquiring funds. Research before registering the business as it will have severe implications later on.
Separate your bank accounts
Regardless of how small your business may be, you need a separate bank account for it to run the transactions through. Many sole proprietorship businesses may prefer to use a personal checking account for business purposes. However, that is not recommended and is likely going to complicate the bookkeeping process. The basic lesson in accounting for the non-accountant puts a great emphasis on getting a separate business account.
Record all your income and expenses
Recording your every business expense and income may appear to be a difficult task. However, it is a must-do. Either you hire someone to do this or take it upon yourself, this job must be completed according to rules mentioned for recording income and expenses. Maintain a ledger of debit/credit entries, which indicates even the smallest of transactions.
Tracking and collecting payments
A business will always have a sales team at its disposal. However, every business does not invest in the recollection process. The basic rule of accounting for the non-accountant requires you to get accustomed to the market norms as soon as you can. Most of your dealings will be based on credit, which means there has to be a collection system in place for receiving and managing these payments.
In time invoicing and incorporating late fees can make the recollection process more efficient. Always ensure that all the parties sign the agreement in advance to a deal. You may have to rely on trust for specific clients, but you cannot trust everyone. The state may govern some of the laws for payments. Therefore, you must ensure to adhere to them at all times.
Managing the cash – accounting for non-accountant
Cash is the king, and every business needs plenty of it to keep operating and be profitable at the same time. However, managing the cash might not be as simple as it appears. You will have money flowing in, out, sideways, and places you never imagined. Keeping track of all your finances requires you to maintain a full-time accounting system. There are many different accounting software options available these days, which are quite useful in recording all your cash proceedings accurately.
A good rule of thumb is to keep 50% of all the earned cash to yourself, save 30% for taxes and other fees, and the remaining 20% for all your expenses. You may even have to cut the percentage from 50 even further if your business is a startup because it usually struggles to maintain stable cash flows.
Therefore, accounting for non-accountant is not something that cannot be done. With little planning and effort, you can overcome most of the bookkeeping challenges faced by your small business.
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