If you are considering starting or have recently started your own business, you will know that you have much to think about. Hopefully, you will have already made a business plan describing what exactly it is you want to do, how you want to do it, and how you will finance it. The question of finance, as you know, is a crucial one when it comes to business.
During your business’ lifetime, the finances are something that you will have to be up to date with constantly. You will need to start business accounting.
- So what is business accounting?
- Why is it so crucial to your business?
- How do you do it?
All of these questions, and more, will be answered for you in this simple guide to business accounting basics for your small business.
What is business accounting?
Business accounting refers to the recording, reviewing, and possibly modifying a business’ finances. This kind of operation can happen monthly, quarterly, or however often the business owner deems it to be necessary.
Within business accounting, the business owner must consider all of their expenses, gains, legal duties (i.e., taxes), salaries, etc. From this information, the business owner can determine how much their company is making in profits, how much they are spending, how viable their current financial practices are, and what modifications need to be made to ensure the longevity and growth of the company.
Why is business accounting so important?
Business accounting is an essential aspect of running a business. It involves keeping all of your receipts, invoices, and other financial documents regarding your business. It will help you to have proof of payments, keep track of your expenses, understand where exactly your profits are going, and who owes and has paid you money.
A business that does not keep track of their accounts can quickly lose sight of what they owe, to whom, and keep making a profit.
Legally, a business with an unclear accounting system could be taken under investigation.
What are the different steps of business accounting?
Make a business plan
Even before your business has actually started, you can begin your accounting by creating a business plan. In the business plan, you should put what exactly you want your business to be, where you want to run it, and what you expect it to become.
On top of that, you need to consider how you are going to finance the business. For example, whether you will need a bank loan or credit card. You might receive a loan from a loved one or be eligible to get a grant from the government etc.
You should also consider the price at which you will be selling your products or services and consider all of the expenses you expect to come across during your first year (i.e., rent, production costs, insurances, taxes, etc.). Having a detailed business plan will help you to determine how much you should be spending, how much you can spend, and how much you will be able to pay back and gain in profit.
Your business plan does not have to be right on the nose, and the chances are that you come across expenses that you did not take into account or didn’t expect during your first year. However, having a plan will help you to have better control over the situation and to be better prepared for the things to come.
Open a bank account
Once your business has been registered, you will need to open your own business bank account. Most businesses legally need a separate bank account for the company, but it is always a good idea to have one, even for those who don’t.
Nowadays, most people and businesses check their bank accounts through their phones, and this is a great tool to have with you when doing your accounting. The bank has traces of everything that has come in and exited your account from the start, which will help you ensure that your bookkeeping is up to date.
You will first need an account for your cash flow. It is also an excellent idea to have a savings account for your business. All businesses fall on hard times at one point or another, and having a backup account for some money for a rainy day could save you a lot of trouble.
Finally, depending on the type of financing that you have chosen for your business, you may also need to create a credit card account. It is a good way of getting the money that you need to pay the start-up fees; however, remember that the money will need paying back sooner rather than later and that the way you use the credit will significantly affect your credit score. If you are irresponsible with it, this could stop you from getting a loan in the future.
Look into financing your business
As previously stated, you could choose to take out a credit card to finance the start of your business. However, there are plenty of other ways of getting the money, all of which need to be taken into account.
There are only two ways of funding a business that does not need reimbursing: Using your savings, or receiving a grant from the government. Of course, neither of these options are available to the majority of businesses. So, you will need to consider one of the other options: A bank loan, a loan from a loved one, a credit card, investors, or a partnership.
No matter which one you choose from the previous list, each will require reimbursement at some point or another. Of course, investors and partners can choose not to accept being paid back if they would rather keep a share in the company, so do bear that in mind before you sign on with them.
The loans that you take will need to be kept in the business accounts. You will need to know exactly how much you have received in loans, how many loans have been taken out, when they were, and when they are to be paid back. These count as expenses and are an essential part of the cash flow in your business accounting.
Look into your business tax obligations
Each and every business has tax obligations. Depending on what you do and how much you earn, you will have to pay more or less in various taxes. However, paying the right taxes at the right time is essential for your business. Taxes will be a recurring issue and a necessary part of your business expenses, so make sure to include them in your accounting system.
Develop an accounts system
From the very beginning of your business, it’s essential to keep all of your receipts, invoices, tax information, etc. In order to keep all of these in order, you will need to develop a filing system. Nowadays, there are plenty of apps and websites that will help you keep all of your financial information safe and in one accessible area to make your accounting duties that much easier. That being said, it’s always a good idea to keep hard copies of these things, just in case.
You can either choose to handle the accounts system by yourself, or if you can afford it, hire an exterior bookkeeper, who will be able to manage all of these different documents for you, and present them to you when you need them.
An organised accounts system will help you an incredible amount in accounting and reviewing your cash flow statement.
Review your monthly cash flow statement
One of the critical aspects of accounting is reviewing it regularly.
Accounting is essential for keeping track of your finances, having invoices and receipts that prove the completion of a project or the payment of a product or service, and helping you to improve your cash flow.
In short, your cash flow is everything money-wise that is going in and coming out of your business. In order to be making a profit, you will need more money to be coming in than going out.
Thanks to your business accounting, you will be able to review when you want what exactly is happening with your business’ finances. This will help you make better decisions regarding your expenses, prices, partnerships, and investments.
Is it worth hiring a business accountant?
Business accounting does take a lot of time and constant care. It is not impossible to learn how to do it, and there are plenty of apps and websites that can help you keep track of everything.
However, it can take some time to learn how to get the hang of it, and getting it wrong can cause some serious financial issues. With that in mind, if you are unsure about how to do your business accounting, and are not confident in trying it yourself for your business, then it is worth consulting an accountant who can either show you the ropes or work with your business continuously.
If you are eager to succeed and want to gain more business exposure then All Things Business can help you grow your business, why not contact us online or give us a call on 01604 267677.
