Accounting Basics for Small Businesses You Should Know
Know which Category you Fall Into
“Before you can nail down a proper way for tracking any income or expenses you really must have a clear understanding of which type of company you are running (Sole Proprietor, LLC, Corporation, etc.). Each type has clear implications on taxes; pay structure, acceptable ways to reimburse yourself, etc. We highly suggest on doing some homework on your options before picking a direction that is best for you”. (Source: thinkcreativecollective.com).
Separate Bank Account
Having separate bank accounts when owning a small business is highly recommended. Keeping everything related to your own money + the businesses money can be quite annoying if you lose track of how much each one has.
Be Prepared to Record all Income and Expenses
Whatever happens in the company, keep track of it. Any receipt must not be thrown away. Instead, keep it in a save place as such papers are crucial for the company.
Process for Tracking and Collecting Payment
A collection process is just as important as a sales process. Keeping things simple is perfectly fine for making this work, being too elaborate isn’t necessary.
Putting in place things like contracts, invoicing, late fees, etc. creates a huge impact on the business. Having written and signed agreements as well as having due dates for payment and penalties for not following your guidelines is something that must be done.
Managing Your Cash
When setting prices and managing cash it is easy to forget about all extra costs. Paying taxes, your taxes, social security and often even fees for health insurance and retirement are some of the many things you must take in consideration before setting prices.
Developing a Rhythm
Like in every business, at times there can be some ups and downs. Maybe at the beginning of the business you would take 2 hours to accomplish something but as time passes now you last 5 hours. This can create a huge impact on the business. Figure out what the cause is in order to fix the problem. However, at times this may also happen because various industries have slow and busy seasons. For this it’s best to create a plan.