The Complete Guide to Small Business Accounting

November 29, 2021by idoscc0

Inability to handle the accounting needs of a small business can lead to its failure. According to the U.S. Bureau of Labor Statistics, roughly 20% of small businesses fail during the first year primarily due to irregular cash flow. Statistics show that 82% of small businesses fail due to poor cash flow management.Other major accounting problems include poor handling of taxes, inefficient use of accounting software, ineffective payroll management, and poor budget control.

Accounting problems can get out of hand if not contained earlier on. As a small business owner, you must be aware of the accounting challenges your business can face. You need to take care of all aspects of accounting, including financial reports, external funding, bookkeeping, tax records, payrolls, and risks.

Here’s a complete guide to small business accounting to help keep your business on top of its finances.

Get a Small Business Credit Card

Combining bank and personal accounts is a major accounting problem for your small business and can lead to fraud and even bankruptcy. As a small business owner, you need to keep your business and personal expenses separate from each other. The last thing anyone wants is to come across your personal shopping bills among the company utility and rent bills. A small business credit card can make handling your small business finances hassle-free and help you keep track of your payments. A credit card also offers several benefits and reward programs to help you save costs.

Secure External Funding

A lender handing a loan contract to a small business owner

A lack of sufficient funding can result in the downfall of your small business. Make sure to secure external funding and loans so your business can continue running smoothly. External loans can help you make investments that can help you grow your workforce and company. Don’t be scared to ask for loans from financial organizations. Opt for flexible terms so you can pay the loans off successfully over time. In order to get a small business loan, you’ll need to provide the following financial statements:

  • Income statement
  • Balance sheet
  • Cash flow statement

Get in touch with a reliable broker so you can secure an effective loan.

Maintain Thorough Financial Records

You need to ensure compliance with the law in all your financial transactions. Keep track of all your cash flow, so it comes in handy if you ever get in trouble with the IRS. Stick to a schedule to record and neatly organize all the transactions of your small business. These include sales, invoices, payrolls, purchases, and other transactions contributing to the cash flow. Make sure to close the books monthly, or at least every quarter. Maintaining a record of your small business finances can also help you identify all unnecessary expenses and help you cut out on them in the future.

It is also essential to keep track of all your financial transactions to maximize your tax deductions. Make sure to save all your receipts, especially for the following:

  • Meals and leisure
  • Business travel
  • Professional gifts
  • Company transport
  • Home office bills

Starting a home office is an effective way to cut down on utility bills and overhead costs. Hire professional business financial planning services to help you plan the following:

  • Insurance planning
  • Savings and investments
  • Estate planning
  • Retirement planning
  • Major purchases
  • Succession planning

Create an Income Statement Report

Three stacks of coins with plants on top

An Income Statement report can help you break your small business finances over a specific period. It can help you identify whether your company is making profits or losses. This statement, also known as the Profit and Loss (P&L) Statement, can help you compare your finances and make predictions about your company’s potential to make profits. The P&L statement should contain your net profit, gross profit, profit before tax, and operating profit so you can show all the costs, revenues, and the profit made by your small business over the past year.

Invest in Accounting Software

Accounting and bookkeeping software can help you manage the entire cash flow of your small business. As a small business owner, investing in accounting software is one of the best decisions you can make. This one-time investment can prove to be highly cost-effective for your small business in the long run. Setting up accounting software requires bank reconciliations, data entry, and connecting small business bank accounts. Explore all accounting software options carefully so you can effectively streamline your small business finances. Make sure that the accounting software includes the following features:

  • Broad reporting
  • Platform integrations
  • Outstanding support
  • Sales tax configuration

Outsourcing reliable accounting and bookkeeping services can help you maintain your financial records accurately while saving you the costs of hiring a full-time employee.

Establish Invoice and Payment Terms

Hundred dollar notes kept on a white envelope

You need to establish clear invoice and payments terms in written form before taking on new suppliers or clients. Make sure to bill your clients as early as possible and ask them for initial deposits on heavy orders,so you haveenough cash to cover expenses such as delivery and labor fee. Try negotiating the payment timeline with your suppliers.Delay their payment as much as possible to prevent hurting the cash flow of your small business. Do the same with your company bills; pay them according to priority rather than in one go. Delay the remaining payments as long as possible but early enough to avoid late charges.

Encourage Quick Receivables

Encouraging quick receivables is an effective way of improving your sales. Itcan help you maintain a positive cash flow, so you don’t have to worry about cash shortfalls. Some ways you can collect receivables quickly include offering your customers incentives such as promotions, discounted prices, and loyalty programs. Quick receivables can also help your small business get rid of its obsolete inventory. You can make payment easier for your customers by allowing online payments options.

Maintain your Tax Records Effectively

A tax return form and 2021 planner kept on a pink surface

It is essential to adhere to your tax deadlines. Tax preparation can get pretty exhausting if you leave it towards the very end. You are also more likely to make mistakes if you’re filing your taxes in a hurry. Maintain thorough tax records throughout the year, so the tax season doesn’t get overwhelming for you. Make sure to comply with all the small business taxation laws to avoid getting involved in a messy situation with the IRS. Tax calculations can get pretty tricky. Ensure utmost attention to detail while filing your tax return forms. An experienced taxation professional can help you submit an error-free tax return form.

Keep in mind that your tax obligations vary according to the legal structure of your small business. Sole Proprietorship, Limited Liability Company, and Partnership can allow you to claim an income on your personal tax return. On the other hand, a Corporation means you’re taxed on your income independently and is subjected to double taxation. A professional tax accountant can help you choose the correct business entity for your small business.

Install an Online Application

You can find a range of applications for every single thing these days. Install a digital app to manage your accounting and bookkeeping needs conveniently. An online app can help you easily maintain all your small business financial records. It can help you keep track of your finances from any remote location. Find an easy-to-use app with sleek features topped with high ratings to help you sort your cash flow and taxes. An online app can help you effectively organize and maintain your tax records throughout the year so tax season won’t get overburdening for you.

Evaluate and Mitigate the Risks

A digital illustration of a cyber-security network

Evaluating and mitigating risks is something small business owners often tend to overlook. Your small business is prone to several risks such as cyber-security threats, financial frauds, thefts, and natural disasters. Make sure to identify and narrow down the risks as much as possible. An effective risk management plan should include the following:

  • Adequate coverage in case of a security breach.
  • An emergency cash fund in case of an unforeseeable death or disaster.
  • Practical solutions in case of financial fraud.
  • Effective measures and resources in case of a lawsuit.

Set up an Effective Payroll System

Make sure to pay your employees on time, so they don’t lose motivation and continue to work hard. Timely payroll payments can also help you avoid getting called for an IRS audit. Ensure transparency when it comes to financial transactions. Keep your employees in the loop regarding the cash flow of your small business. If there is a delay in payroll processing, let your employees know in advance and let them know the reasons behind the delay.

A professional accounting firm can help you create error-free payroll for your workforce.

Establish a Health Insurance Plan

Establishing a health insurance plan is an essential aspect of small business financial planning. As a small business owner, you need to create an adequate health insurance plan to provide better and affordable healthcare for your employees. Health insurance for your small business can result in better employee productivity and more loyalty. It can help improve the image of your company and result in better employer branding, which can help you build a better talent pool. It can also help you save money through tax deductions. Choose a health insurance company wisely, and weigh all factors, including coverage flexibility, rates and charges, access to healthcare providers, and availability.

Tax documents kept on a black surface

Reliable Accounting Services in West Palm Beach

Advance Tax Defense and Accounting is a small business accounting firm based in Palm Springs, Florida.The firm provides various accounting and tax services to help small businesses stay on top of their finances. The accounting and bookkeeping services can help you manage your finances effectively while cutting down on your costs.The company provides various accounting services, includingcash flow management, financial planning, payroll management, and monthly bookkeeping.

The accounting professionals at Advance Tax Defense and Accounting can help your small business maintain a healthy cash flow and prevent shortfall crises. The firm provides recurring transactions so you can run your finances regularly. The accounting firm also specializes in multicurrency to help you balance the books regardless of the source of your purchase.

The accounting and tax company provides various small business taxation services. The e-commerce tax services include assistance with multiple agencies sales tax. It also provides various tax planning and tax preparation services to help small businesses ensure compliance with tax laws and reduce tax liabilities. Moreover, the tax relief company provides tax solutions to help you sort your IRS tax problems. The taxation professionals at the company can also help you determine the most suitable legal structure for your small business so it can receive protection and tax benefits.

The professionals at the company ensure utmost confidentiality in all services to protect your privacy.

Contact Advance Tax Defense and Accounting now for more information.


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2255 Glades Road Boca Raton, Florida 33431 (800) 9
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Copyright © 2021 by Jean Oczeus, EA. All rights reserved.

Copyright © 2021 by Jean Oczeus, EA. All rights reserved.