Only those who start an accounting outfit actually launch their small business to run the numbers and dig deep into business finances. Still, no matter what big idea you’re bringing to the market, this basic guide to small business accounting will help you keep on top of the business books from the beginning.
Small business accounting entails a lot of elements. If you’re really not confident in your numbers game, you may just want to skip ahead to hiring one of the many small business accountants out there. Still, with these small business accounting basics, you might find you can, in fact, handle simple accounting for your small business.
This small business accounting 101 guide covers five essential steps in accounting for small business owners:
- Find your business bank
- Set up a small business bookkeeping system
- Establish your method of managing payroll
- Determine tax obligations
- Reevaluate accounting practices
Find Your Business Bank
Even before you get deep into how to do accounting for small business, you’ll want to research business bank accounts. You may be inclined to just sign up at the bank where you have your personal accounts, but know that many credit unions and banks like to partner with small business owners.
To find the right business banking partner, you might look for an institution with:
- Experience in your industry
- Options that will integrate with your other business technology
- Convenient locations to meet your in-person needs
- Online dashboards to help you track small business finances
- Systems to help you accept payments
- Attractive business loan rates
- Competitive fee structures
- Perks and incentives for small business owners
Set Up a Small Business Bookkeeping System
Effective accounting for small business relies on you to keep track of the finances. This needs to start on day one. First, you need to develop a system for small business record keeping, tracking revenue and expenses. This will help you manage your cash flow and make sure you always know how your business is doing.
You might want to keep all your receipts in a shoebox. Or maybe you’re going to download one of the apps that helps you scan and sort your receipts as you get them. However, if you do it, be consistent. It’s going to help your financial reporting and tax filings in the future.
Every small business needs a bookkeeping solution that helps keep track of day-to-day transactions. While accounting for a small business is more high-level, the bookkeeping for a small business is something you can do using a simple Excel spreadsheet, software such as Quickbooks, or outsourcing to a consultant focused on simple bookkeeping for small business.
Establish Your Method for Managing Payroll
You may be a solo entrepreneur at first, but once you hire any outside help, you need to establish a payroll system. A consistent payroll procedure is an important part of small business accounting. You’ll need to:
- Have your employees fill out W-4 forms
- Sign up for an Employer Identification Number (EIN)
- Set up a payment schedule
- Determine tax withholding
- Track how much you are paying each person
- Learn which tax forms you must file
This is something you can handle on your own, but otherwise, you might use a payroll service to manage this for you. Or you could hire an accountant.
Determine Tax Obligations
Depending on your products or services and your business model, you may have different tax obligations. For instance, someone doing dropshipping or importing goods will have to account for import tax. You’ll also need to look into sales tax rules for the market where you are doing business.
If you have an online store, you’ll need to understand the sales tax obligations for customers located in different cities, states, and even countries.
Additionally, your tax obligations are going to vary depending on the legal status of your small business. Self-employed people typically need to withhold their own taxes and pay estimated quarterly taxes. Your income tax regulations will be different if you’re a sole proprietorship, LLC, partnership, or corporation.
Need help? View our Tax Tips for Small Business Owners.
Reevaluate Accounting Practices
You may start out not needing any small business accounting help. But don’t get complacent. As your business grows and changes, your bookkeeping and accounting needs will evolve too.
When you reevaluate your accounting practices, you may decide to hire a small business accountant. If so, consider these tips:
- Location matters; look in local directories and pick someone who you can meet face-to-face
- Relevant experience will help your accountant serve your unique business needs
- Ask around to find someone your peers’ trust
- Insist on an accountant who will look for savings and identify efficiencies
- Try to find a partner who will help drive business growth
Setting Up Small Business Accounting
Small business accounting doesn’t have to be a huge headache. Use these strategies to start on the right foot when you first launch your business. You can track your revenues and expenses, manage payroll, pay taxes, and make sure you’re doing all you can to grow your business in a financially stable way.