Comprehensive Accounting Guide for Small Businesses
Each year quite a few small businesses go bankrupt. A significant reason why these businesses fail has to do with planning. Most of the small business owners don’t realize that lack of comprehensive planning is the sole reason behind every setback in business. Indeed, financial planning is essential for achieving long term business goals. However, managing finances can be daunting and overwhelming for new and sometimes for seasoned entrepreneurs as well. Thus, sticking to a walkthrough guide to deal with finances would be effective for all business persons. Here is a comprehensive guide for you on how to get your finances in order before starting your business or moving forward.
The first step is to familiarize and educate yourself with the idea of being a small business owner. After you have done that, you can move on to the necessary financial planning. To do so, you’ll need to do the following things.
Step 1: Get a Bank Account.
Every business structure requires a business account. The mistake that most sole proprietors make is not starting with a separate business account. If you are a sole proprietor (sole owner), having a separate bank account (with a separate business credit card) can help keep you organized. It separates your personal funds from your business income. It is especially important because sole proprietors do not have a separate legal status from their business.
Another thing that is recommended is to get a savings account and put some of your income (set monthly income), which is separate from your business revenue and treat it like a retirement fund.
Step 2: Learn about the Accrual Method of Accounting.
Canadian Revenue Agency (CRA) requires your small business’ income and expenses to be reported using the accrual accounting method.
To summarize under the accrual method of accounting, you report income when you earn it and expenses when you incur them, regardless of when the money actually changes hands as opposed to the cash method of accounting in which income is recorded after it is received and expenses are recorded in the period in which they are paid. Therefore, it is necessary to get familiar with the method
Step 3: Start Tracking Expenses
It can’t be stressed enough how important tracking expenses can be, especially for new businesses. So a good practice is to start tracking every single spending that your business makes. It is important because once you sit down at the end of each month with all the expenses made in front of you, you can quickly figure out what it is that you’re doing right and where it is that you are losing money and why. It will also be helpful later on regardless of whether you end up doing your own taxes or decide to hire anyone offering professional accounting tax services to do them for you. Since you would have noted each expense, it would make the filling process quicker. It will teach you how to manage your income and expenses.
As a general rule for tracking expenses is to track each expense no matter how small it may seem, as even the most insignificant expense can add up over a period of time.
Step 4: Find and invest in accounting software that works for you.
This is important as this accounting software helps small business owners track revenue and expenses, invoices and receipts, vendor, and employee lists. Most also provide you with an option to upload the transaction sheet from your bank account directly. Some of the popular ones are Quickbooks, Freshbooks, Sage business cloud accounting, Xero and gnu cash, e.t.c.
There are many software available on the internet, many of which have specific tools and other small business accounting services that can prove helpful for you. Therefore, before you decide on one, try the different demos and buy the one that works best for you and your business needs; this will help you when you set up your chart of accounts.
Step 5: Learn the Basics of Accounting:
Even if you plan to hire someone who offers the best accounting services in Canada, you still need to know the basics because it is still your business, and accounting is an integral part of it. You need to know what a debit entry is for and how it differs from a credit entry. What the accounting equation for an asset is e.t.c
This applies to every business owner, even if they own a company that can easily get the best accounting plus financial services available.
Step 6: Set up Payroll
If you are hiring people, you will need to open a payroll program account. Many accounting software even offers payroll as a feature, and a lot of other services are also available.
If you plan to work with independent contractors, make sure you know how much you are paying each individual.
Step 7: learn your tax obligation
If you plan to sell your product online, learning about tax obligations is an important part; this will also help you establish and follow correct sales tax procedures. Whether you plan to use your website or use an e-commerce store. Make sure that you do your research before.
Step 8: Outsourcing your accounting need
Last but not least as your business grows, the finances will become more complex. So, do not hesitate to hire an accountant when they do. Contrary to popular belief, they can actually help you save a lot of money that you could be losing otherwise. Hiring an accountant will also free up your valuable time that can be invested in the business side of things.
Just make sure that you consider the following things while hiring an accountant
- Location
- Experience and Expertise
- Knowledge about your preferred accounting software
All of which can easily be searched online; for example, if you are a small business owner from Edmonton, you can search: Tax and accounting service in Edmonton, and people who provide those services in Edmonton should pop up. From there you can easily look at each one and decide which ones to contact.
Doing this will save you a lot of time which would otherwise be wasted. Just remember the sooner you can hire them, the faster they can get your finances in order.
