Best Practices for Small Business Accounting
Small businesses are unique in many ways, but especially in their accounting. Whether you own your business or work as an accountant for a small business, you know that the budgets are much narrower than that of a large corporation. Because small businesses are often privately owned, there’s also the issue of figuring out how to pay owners, how to keep money separate, and the tax obligations of the business. To help with all of that, here are some best practices for small businesses:
Keep Personal and Business Separate
The biggest rule in small business accounting is to keep personal and business finances separate. You shouldn’t be paying for groceries with your business credit card or depositing birthday money in the business account. It can create a big headache come tax time and even send up red flags at the IRS.
Be sure to keep two separate bank accounts if you own a business. One should be for your personal life and the other for your business. Pay yourself from the business, but put that money in your account so you can use it safely.
Use Accounting Software
Tracking all of your expenses can be difficult to do manually, which is why most small businesses opt for some type of accounting software. Quickbooks is the industry favorite because it has powerful capabilities and is easy to use. Programs like this can help you track your costs and revenue, which can help you to manage your profitability. It even makes things like reconciling your finances and preparing tax returns easier and faster.
Track Employee Time
This might seem like more of a human resources task, but tracking employee time can help you manage your budget too. Keeping tabs on how long people work on which tasks can help you measure productivity and get an idea of which services are generating the most return on investment. It also gives you an accurate number to base hourly wages on while avoiding disputes with employees.
Take time each month or quarter to evaluate your books. Look at your accounts payable and receivable and make sure all payments are up to date. Keeping tabs on things consistently will help you catch problems early and avoid disasters throughout the year. It could also help you notice trends faster and be able to adjust strategically.
Small business bookkeeping is unique, but these few tips will help you manage it effectively.