Running a small business or a startup can be an incredibly rewarding experience, especially when you start hitting those milestones. However, the to-do list of a small business owner tends to cover everything from digital marketing and client acquisition to payroll and other accounting needs for small business. To help you avoid some of the most common small business accounting pitfalls, we put together a list of 10 steps that will save you a lot of headache down the road.
Open a Bank Account
Once you legally register your business, you’ll need to head to the nearest bank and open up a business account. LLCs, partnerships, and corporations are legally required to have separate accounts, but even if you’re a sole proprietor, you’ll still want a separate account. This will keep records separate and will make life easier come tax time.
Track Your Expenses
One of the cornerstones of business success is effective record-keeping and expense-tracking. Right off the bat, create a system for organizing receipts. Pay attention to receipts for meals and entertainment, out of town business travel, vehicle-related expenses, gifts, and home office.
Develop a Bookkeeping System
If you ask anyone about accounting for new small businesses, the very first thing they’ll mention is bookkeeping. Bookkeeping is the basis of your accounting system, and it covers the day-to-day process of recording transactions, categorizing them, and reconciling bank statements. If you decide to do it on your own, you’ll definitely want to do some research on the best small business accounting software available on the market.
Set up a Payroll System
As a small business owner, chances are you’ll be a one-person show. However, if you hire someone to help you, full-time or part-time, you’ll need to figure out a payroll schedule. If you hire independent contractors, such as designers or web developers, be sure to track how much you’re paying each person.
Investigate Import Tax
Not all businesses will import goods from other countries, but if you do, you’ll definitely want to do your research, as you’ll likely be subject to taxes and duties.
Determine How You’ll Get Paid
When your business takes off, sales will come rolling in. When that happens, you need to already have a payment system in mind. Are you going to use online payment systems, credit cards, or cash? Which services will you be using?
Establish Sales Tax Procedures
When a customer walks into a brick and mortar shop, they are paying the local taxes, regardless where they’re from. However, online sales can get a bit confusing, depending on the state you live in, so check in with your accountant for detailed information on taxes that apply to your business.
Determine Your Tax Obligations
In addition to sales taxes, you’ll also need to discuss your own tax obligations with your accountant. Keep in mind that these vary, depending on if you’re self-employed, an LLC, a partnership, or a corporation.
Calculate Gross Margins
Improving your gross margin is the very first step toward earning more income. To do this, you first need to know how much it costs to produce your product. Gross margin is the total sales revenue that’s kept after you cover those costs. This may sound like Accounting 101, but you’d be amazed just how many people start a business without even thinking about gross margin.
Periodically Re-Evaluate Your Methods
Once you learn how to do accounting for your small business, you’ll want to keep an eye on your accounting system. As your business grows, you might need more complex methods, or you might start spending more time on bookkeeping than on running a business. Reassess your business needs and make sure your accounting system is optimized for your unique needs.
Work with PDR CPAs
If you are interested in a prosperous future from a personal and/or business standpoint, reach out to our team of dedicated specialists. When considering accounting, audits, tax or business consulting, one call can make all the difference. Click here to get started – we look forward to working with you!