A small business accountant helps manage expenses, track income, and ensure tax compliance. Choosing the right accountant improves financial accuracy and supports business growth.
By Brad Nakase, Attorney
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An essential component of managing a small business is accounting. The key to controlling cash flow is putting in place procedures and optimal methods for monitoring expenses and income. It’s far too simple to lose track of money or the financial records required to submit tax returns and, if required, small business funding applications without these procedures in place. Important responsibilities that are part of accurate accounting for small firms are discussed in more depth below.
Important Notes
Any firm, even tiny ones, must have a strong accounting department. Among other things, it assists entrepreneurs in monitoring their business-related costs, debts, assets, and revenue. It enables business owners to put together their tax returns as well. As such, it aids in establishing a solid basis for small business owners. Many owners choose to work with a small business accountant to streamline these processes. There are four main actions included in this:
Let’s examine each stage in more detail.
You can keep work and personal expenses apart by creating a business bank account. This can be useful if you intend to deduct qualified expenses from your taxes. A small business accountant can help ensure proper compliance with tax laws and financial tracking. A small business’s bank account must often be opened using the following:
If required by the bank, you could additionally need a minimum initial deposit. Depending on the kind of business account you are opening and whether you’re doing so at a conventional bank, online bank, or credit union, minimum deposit criteria may vary.
Your accounting system dictates how you declare your income and subtract your annual expenses. You can select between accrual and cash, according to the IRS (Internal Revenue Service). These are their comparisons.
A small business accountant can assist in determining which method is best suited for your financial situation.
If you utilize accounting software, an account chart is a list of all the accounts that can be used to record transactions; if not, it’s a general ledger. You would first group your accounts into distinct categories before further segmenting your company into pertinent sub-accounts in order to produce this chart.
For each of your account categories, you would adhere to this system. Accounts for assets, liabilities, equity, revenue, and expenses are common categories.
Twelve consecutive months during which accounting work is documented make up a fiscal year. The only requirement is that the fiscal year must consist of 12 consecutive months, but small business owners are free to choose when it starts and ends.
For example, you may decide that your fiscal year begins on July 1 and ends on June 30 of the subsequent year. Based on what suits your company best, you may also take a more conventional route and have the fiscal year coincide with the regular calendar year. For example, you can decide to start the year at the start or finish of your strongest sales season if your business is seasonal.
Consulting a small business accountant can help in making this decision based on tax advantages and business operations.
For owners of small enterprises, basic accounting consists of an essential set of tasks that are all intended to assist you monitor the spending of your money. The following are the most crucial bookkeeping procedures:
But which costs are important for small businesses to monitor? They’re all of them, to put it simply.
All of your financial transactions, including your monthly rent payment, essential services, office supplies, and mailing costs, should be carefully documented in the accounting system you use. This guarantees that when it comes time to claim business expenses as a deduction on your yearly tax return, you will have the right numbers. A small business accountant can streamline these tasks and ensure financial accuracy.
Those chores might take a lot of time when done independently. It frequently gets easier to use a thorough bookkeeping software package with time. To make it simple to import & export transaction history, the best bookkeeping software integrates with your company’s payroll and bank account systems. Some of the top solutions for business bookkeeping software will be discussed later.
Your small business’s ability to effectively manage its revenue and expenses can be determined by looking at its financial statements. Additionally, if you are planning on applying for small company funding in the future, you will need to provide lenders with current financial statements.
You should think about making these three financial statements for your small firm.
You might be able to create these statements instantly if you’re already using a small company accounting application that uses the income and expense data you’ve already input. A small business accountant can help prepare these statements to ensure they meet financial standards.
Being a small business owner entails filing taxes and paying the IRS any debt you may have. State and federal taxes, along with any applicable municipal taxes, must be paid by businesses. The federal government has five different kinds of small business taxes:
The taxes you are required to pay depend on the structure of your firm. Keep in mind that payroll tax must be taken into consideration if you have staff. See a qualified accountant or tax specialist for guidance if you’re unclear about your tax responsibilities. Consulting with a small business accountant can help in optimizing tax deductions and ensuring timely filings.
The IRS permits business owners to claim several deductions. Your taxable earnings for the year are decreased by deductions. The following are a few of the costs you can write off:
It is important to remember that you will need to monitor each of these costs and preserve the appropriate documentation for each. Maintaining correct records accomplishes two goals:
Electronically organizing and storing receipts may be a possibility if you’re utilizing tax filing software.
Tools, software, and apps can help your company save time and even money by ensuring more accurate accounting. A software application can also help you avoid hiring a permanent accountant, which could increase your company’s costs.
Accounting software can also assist you in:
For small businesses, there are many software solutions available; two of the more well-liked ones are FreshBooks and QuickBooks. When choosing an accounting software application, it’s helpful to start by thinking about what your company needs. After that, you can compare several applications to assess the variety of advantages and features offered as well as the total cost of employing them.
You could think about hiring an accounting expert to manage your small business’s accounts, even though you could do it yourself.
Think about getting recommendations from other entrepreneurs if you’re going to select an accountant. If a few names come to mind, you can set up appointments with individuals who seem the most potential. Consider posing the following queries to them in your meeting to gain a better understanding of how well they complement your company:
If you are comfortable communicating by email or Zoom, you may decide to start working with a remote bookkeeper. Before you accept an agreement for their services, make sure to inquire about their experience and background, even though the fees can be lower.
There’s one less thing for you to worry about when you let someone else do your accounting. You will have more time to work on other things that are essential to operating or growing your company rather than calculating figures. Additionally, professional accountants may be more familiar with tax laws and reporting standards and can guarantee higher accuracy.
The drawback, however, is that outsourcing implies that someone else is viewing the financial data of your company, which you could or might not find acceptable. In addition, the cost of hiring an accounting professional on a part-time or full-time basis must be taken into account.
It is impossible to undervalue the significance of accounting for small-scale businesses. Establishing a sound accounting plan can assist you in tracking and preserving your financial well-being, regardless of whether you are launching a new company or have some experience. You’ll probably be able to devote some of your precious time to other crucial areas of your company if you adhere to the advice we’ve provided above. Many entrepreneurs choose to work with a small business accountant to manage their finances efficiently, freeing up time to focus on growing their businesses.
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