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7 Tips for Successful Accounting When Starting a Small Business

7 Accounting Tips

If you’re reading this, you’ve most likely already had your ‘eureka’ moment: a business idea that you feel is good enough to invest huge amounts of your time in developing and expanding. While there is a lot to be excited about when starting a small business, there are also a few, less appealing nitty gritty details that have to be dealt with, accounting being one of them. Strong accounting practices allow for control and monitoring of business finance, bad accounting practices, well… they lead to failed businesses. The good news is, you don’t have to be an expert to have handle simple accounting procedures — you just have to be well-prepared.

TIP 1: Find Out What Taxes You Have To Pay

Before you even get out of the starting gate, you need to pause and identify what taxes your business will have to pay. Every country has different laws and requirements, so it is vital you do research based on which nation you’ll be taxed by and look at what you’ll have to pay. If you don’t, you could be caught out later down the line.

TIP 2: Learn About Deductibles

Once you know what you have to pay, it is also important to consider what you won’t have to pay. Deductibles are expenses allowed by most nations that help businesses reduce their running costs by allowing them to deduct the amount of the expense from their tax bill. For example, equipment, rent and travel costs may all be a vital part of what keeps your business ticking, and thus you can claim them as deductible expenses.

These expenses can’t just be any old thing you’ve bought, they have to be directly related to your business and you will have to have evidence to prove this — which we will discuss later — in the event of an audit by the taxman. It is also worth noting that you can only claim up to a certain percentage of your annual income, so don’t get carried away thinking you can escape tax by making endless business purchases.

TIP 3: Set Up A Business Account

If you are operating a particularly small business, such as freelance work out of the home office, then it might be tempting to just have your earnings paid into your personal account, but this is a mistake. A separate business account is an important part of tracking earnings and keeping business purchases different from personal ones. It doesn’t take long, it doesn’t have to be anything fancy, just a separate bank account dedicated to the incomings and outgoings of your business. Not only will it help you monitor exactly what’s come into your account, whether you’ve been over or underpaid, but it will also mean that if the taxman were to look into your returns, they wouldn’t be trawling through personal payments. This could lead to confusion and even suspicion of dishonesty, for example, if money given as a gift is mistaken for unclaimed income.

TIP 4: Invest in Bookkeeping Software

Keeping track of different aspects of your finances including expenses and deductibles, different forms of income and outgoings or cost of supplies and employees can be tricky but, there is help available. These days, there is a whole host of software available that allows you to easily organise all forms of business transactions, giving you a clear overview of your company’s current financial situation. In order for this to remain effective, however, it is important that you update the software regularly. The details of which we covered in a previous article, Four Accounting Mistakes, And How To Avoid Them!.

TIP 5: Retain Proof of Transaction

Proof of transactions, be they receipts, invoices, bank statements, etc, are a vital part of financial record keeping. Essentially, they are pieces of evidence that can: a) help you work out if you’ve made an arithmetic error during bookkeeping or filing a tax return or; b) provide evidence to the taxman that all your claimed income and deductibles are legitimate.

Any and all proof of transactions, therefore, must be kept securely either as physical copies or digital files (or both). It may be annoying and even time consuming to store every piece of transaction evidence, but without them you cannot successfully deal with the problems posed in the paragraph above. Problems that if not handled can lead to more serious issues further down the line.

TIP 6: Budget For Tax

By now, you’re storing receipts, you know what tax you have to pay and your deductibles and you’re in the full swing of business, hopefully making some money. But, before you get over excited with your new earnings and go off to buy a boat or luxury condo in Bora Bora, you must remember one thing. Not all the money you are earning is yours. Depending on what your projected earnings are, a certain percentage of that income belongs to the taxman, and it must be paid.

Take some time then, to make a prediction of how much you are likely to earn in the upcoming tax year and budget accordingly, putting aside enough each time you are paid to deal with your tax responsibilities. The result is that in the event all of it is required, you aren’t having to scrape together money set aside for personal use to make tax payments yet, if you saved too much, you have nice little cash injection to either save for the next tax season or to put into your personal account.

TIP 7: Consult an Expert

While these tips can help with small-scale accounting success, there is a reason that professional accounting is so prevalent in larger business, and that’s because the system of accounting itself is a complex one. It requires a lot of training to become qualified in the field, and therefore you simply can’t expect yourself to be able to deal with all accounting issues single-handedly. Experts are available not just as full-time hires, but also for short-term contracted work and one-off consultations.You may not need help initially, but be aware that in the event that a problem arises, such as an audit, that you are unable to deal with, professionals are always available to provide guidance and support.

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