Accounting can be one of the most intimidating aspects of starting or running your own business, and it’s easy to get confused by all the necessary jargon and complicated formulas. That’s why we created this simple, step-by-step guide on how to do accounting for small businesses or why should you hire top accounting services that even a complete novice can follow.
We will walk you through each essential stage in the process, so you can focus on growing your business instead of worrying about your numbers.
Selecting an Accounting Method
Once you’ve formed your company, there are two main methods of accounting that you can use to track your income and expenses. A cash basis is where you only record income and expenses when they’re paid or received.
Accrual is where you account for transactions as they occur—even if money has not been transferred between accounts yet. Both have their advantages, so it’s best to choose an option that matches your type of income and operations.
Recording Business Transactions
Business transactions can be recorded using journals and ledgers. These are specialized books that businesses use to record specific types of financial information. Journals are records of money coming in and out of a company, whereas ledgers detail what accounts within your company contain. click this
Larger businesses who hire top accounting services typically use software like QuickBooks or Sage to manage their books and record transactions; smaller businesses with limited resources may simply use paper journals and ledgers.
Preparing Financial Statements
There are two primary types of financial statements you should prepare as a small business owner or entrepreneur. The first is an income statement, also known as an earnings statement or profit and loss statement (P&L).
A P&L shows how much money your company made and lost over a specific time. It is organized by revenue, then operating expenses (which are sometimes called cost of goods sold), then net profit (or bottom line).
Filing Tax Returns
Keeping your taxes up to date is probably one of your most daunting challenges as an entrepreneur. Not only does keeping your numbers organized prove difficult, but you need to ensure that you’re paying out all of your taxes each year (or face some hefty fines).
Setting aside a few hours each week will help ensure that you don’t get caught off guard come tax season. And if you want to go above and beyond, consider hiring an accountant so they can take care of things on their end.
Managing Cash Flow
If you’re in business, there’s one number that will directly affect your company’s success or failure and that is cash flow. Managing cash flow means paying attention to how much money comes in versus how much goes out regularly.
A lot of companies spend more than they earn—and even companies that bring in millions can go under quickly if they don’t understand (or ignore) managing cash flow.
Ensuring Balance Sheets are Accurate
Like personal finance, doing accounting for a small business is about maintaining an accurate account of where your money is coming from and going.
If you want to know how much cash you have at any given moment, or how much money has come in over any particular period, that’s what an income statement (aka profit & loss statement) will tell you. You can also use it as a way of tracking your progress against sales goals and projecting how much cash you’ll have on hand in future periods.
