Accounting sounds like just about the most boring aspect of small business ownership imaginable to many people. There are a select few admirable and meticulous humans who get excited at the thought of a spreadsheet.
But, if your goal in starting a business is to make money, (and chances are it is!) the success of your business will hinge on the quality of your accounting practices.
If you are considering starting a small business, you will benefit from developing a working knowledge of the following accounting basics.
Use a Separate Bank Account for Your Business
When you decide to open a small business, the first thing you need to do is open a small business bank account.
Do not combine your personal and business finances. Do not use your personal bank account to purchase anything for your business. Do not deposit business income into a personal bank account.
To protect yourself from legal issues and tax issues, the line between your business finances and personal finances needs to be very clear.
Create a System for Recording Income and Expenses
Record business transactions in a double-entry bookkeeping system. This could be a journal or spreadsheet that tracks your debits and credits.
Create a Budget
Create a budget for your expenses and your income. You want to try to predict as realistically as possible how your finances will look in the future. Begin with a forecast for the next five years.
Use an Accounting System for Your Small Business
Small business accounting systems can save you time and improve your accounting accuracy. Small business accounting apps like paystub creator can help simplify the process of paying your employees.
In addition, it’s not a bad idea to page through some basic accounting books to learn more in-depth accounting practices.
Save Ahead of Time and File Your Income Taxes
Every business needs to pay taxes. It is important that you know what taxes you will need to pay. Every business is required to pay income taxes, but there may be other taxes you need to pay as well.
Once you have determined which taxes you will be required to pay, plan ahead and save accordingly.
As a general reminder, it is always a good idea to file your taxes on time.
Documents and Calculations You Need to Know
You will need the following documents to run a successful small business. These documents include:
- Income Statement
- Balance Sheet
- Profit and Loss Statement
- Cash Flow Statement
- Bank Reconciliation Form
These documents allow you to track your profits, balance your budget, record income/expenses, and chart your investments. You can learn more about these documents here.
Takeaways on Small Business Accounting Basics
The main principles of accounting basics include creating a separate small business bank account, implement a record-keeping system and a budget, consider an accounting system, and file your taxes.
If you learned something from this article, you’ll benefit from checking out the other articles in our Business section.