If you’re a small business owner, you’ll be acquainted with handling numerous tasks at once. Alongside handling basic operations, you need to generate income, keep your customers happy, and manage financial information. Bookkeeping and accounting can be quite a task, and one of the biggest questions to answer is finding the right person to do the job.
Any company irrespective of the kind of business is absurd without accounting. It will help you stay clear of the IRS and form the foundation of business stability and decision-making. Therefore, bookkeeping and accounting are a vital task that needs handling with the utmost care. In very general terms, accounting is a documentation of all economic operations through records management. However, in a broader sense, it deals with all the financial matters, including tax planning.
A smart business owner understands that without proper accounting, he is like a car owner without a GPS. You can see the road but are not able to reach the destination. The primary functions of bookkeeping include
- Validates the outcomes of the company activity to date
- Helps in the timely submission of all the business documentation
- Tracks all available resources like inventory, labor, materials
- Decision making and future planning
Below is an ultimate guide that, if followed, can be your recipe for success.
Selecting the appropriate accounting method
Businesses follow two methods for recording financial transactions. Either a company will support a cash method or an accrual method—the difference between the two lies in how the economic event gets recorded in the books. Well-established businesses practice the accrual method of accounting. It involves recording a transaction even if the customer has not paid yet. The cash method is a slightly simpler version as the transaction gets recorded when money exchanges hands. Small businesses usually focus on the cash method for bookkeeping and accounting, as it is convenient and straightforward. However, depending on your business needs and preference, you can choose the most desired.
What records to keep
Business licenses, permits, tax documents, DBA certificates, and other vital documents that have legal implications for the business should be regularly updated and stored safely. You need to know the location of all your business-related documents, whether it’s online or offline. These documents can come in handy at any time, and if you have kept the correct records in the right place, you can access them anytime.
Along with legal documents, there are many other sources and supporting business documents. Accounting for small businesses requires you to maintain the source documents accurately as they are of high importance while keeping copies of your contracts, invoices, receipts, and payroll records along with many other materials depending on the scale of the business. All successful companies keep authentic records and use them as sources of information to make better future decisions.
What and how to record
The whole shebang that has a connection to money and involves transactions has to get recorded properly. Keeping day to day records of both inbound and outbound payments is imperative because it will offer you a wholesome picture of the movement of funds across your business. Bookkeeping and accounting for small companies should record liabilities, taxes, operating and overhead expenses, and employee paychecks as those have to get referred to regularly.
The cash that comes from the sales has to be managed and recorded appropriately daily. If you leave that to the last, the probability of making errors get high. If you leave this to the year-end closing time, you are surely in for big trouble. Therefore, what and how to record is a question you must answer right at the start of the bookkeeping process.
Separate business and personal finances
Some small business owners make the mistake of keeping business and personal finances alongside. It is never a good idea to do that because it can be confusing and legal because it can get you into trouble with the IRS. If your business lands into some trouble, you can be personally held liable for the discrepancy. Whether you are managing the accounting yourself or have hired someone for the job, a business should always be kept separate from personal matters.
Separating personal and business finances will also benefit you at the time of taxes. It will be easier for you to file the returns as well as you’d make the IRS job easier.
Use bookkeeping and accounting software
Most businesses these days start with opting for accounting software that keeps track of all the financial information. All you need is to enter the data. You can get complete balance sheets, income statements, and all the other vital documents vital for better decision making.
Small businesses have a lot to worry about at the start. Ensuring the correct implementation of the underlying financial structure will keep them away from harm for the most part. Following the guidelines mentioned above for bookkeeping and accounting can save you significant time and effort.
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