How to Untangle Your Business Finances
A bookkeeper plays a pivotal role within a small business. They’re responsible for a variety of tasks, but their main focus is on the organization, recording, and reporting of the many financial transactions that make up the operational life of a small business. Nowadays, modern bookkeepers have extended their range of duties to include:
• Implementing document management and inventory control processes to create and improve efficiencies within the business.
• Implementing POS (Point of Sale) systems that will capture the daily transactions in a retail environment.
• Developing, implementing, maintaining, and reviewing internal business processes
• Any other area of specialty that your bookkeeper might possess. (In fact, it’s smart to inquire about your bookkeepers special skills when you’re hiring for the position.)
WHAT DO BOOKKEEPERS DO?
There are many tasks a bookkeeper must undertake to keep your business running smoothly. Here are just a few of them:
The bookkeeper’s role in the organization is to undertake the day-to-day work so the accountant can concentrate on strategic financial operations. Bookkeepers are an integral part of any business—without them, accountants can’t do their jobs.
HOW WILL YOU VIEW YOUR BOOKS?
CASH VS. ACCRUAL
Business owners need to determine whether they’ll use the cash or accrual method of accounting. Let’s take a look at the difference between the two methods here:
Say, for example, you invoice a client for $5,000 on February 1, and receive payment on March 15. You would record the income you received in March’s bookkeeping—not February, when you invoiced the client. March was when the money was received.
Let’s continue with the example we used above, but apply the accrual basis of accounting. You would record the $5,000 as income in February’s bookkeeping versus March, when the funds actually land in your bank account.
WHAT’S BEST FOR YOUR SMALL BUSINESS?
The cash method of accounting is decidedly the more straightforward of the two methods, which makes it appealing to small business owners who value simplicity. The accrual method requires more bookkeeping simply because you’re forced to do a lot more tracking and recording.
So long as your sales don’t total more than $5 million per year, small business owners may use the cash method or the accrual method—it’s your choice. But, if you have merchandise in inventory that you sell to your consumers, you’re required by the IRS to use the accrual method.
There are pros and cons to both methods. While the accrual method accounts for money that’s yet to come in, you’ll get a better picture of the funds in your bank account if you use the cash method. The accrual basis offers your small business a long-term view of your finances, but the cash basis provides an upto-the-minute look at your financial picture.
Some small businesses decide to use a hybrid method of accounting, allowing them to take advantage of the benefits of both the methods, using accrual accounting for inventory and the cash method for expenses and income. If you’re wondering which accounting method would be best for your small business, speak with your CPA or tax professional.
SPREADSHEETS VS. A SYSTEM
Google Sheets, Excel vs. Quickbooks, Xero If you only take one piece of advice from this guide, let it be this: if you don’t have a clear picture of your business’s financial health, you’re not making as much money as you possibly can—money is being left behind. Period. For the health of your business, it’s time for you to begin using some form of accounting software, such as QuickBooks. When you avoid the time-consuming and cumbersome Excel spreadsheets, you’ll save time, money, and your sanity.
Accountants are, at heart, financial doctors. We spend our days monitoring the pulses of small businesses everywhere, and we want to share some of the most common accounting habits (good or bad) we encounter regularly in small businesses—the habits that sometimes hold small business entrepreneurs back from achieving their full potential.
Accounting with Excel is the wrong move. A prominent accounting issue: using Excel to track expenses instead of an option like QuickBooks, Xero, Wave, or Kashoo.
As you might imagine, we encourage you to use accounting software because we know it will make your business game stronger. However, before we start to compare and contrast Excel to QuickBooks or any other accounting software, we have a question for you:
If your car broke down tomorrow, would you call up your cousin and ask him to watch dozens of hours of YouTube videos, and then try to revive the car together? Or would you consult a mechanic—an expert—so you don’t have to reinvent the wheel (pun intended) yourself? You need a mechanic to fix your car right the first time, just as you need accounting software to improve your small business’s accounting practices.
Accounting Software Beats Excel Every Time
Still not sure? Here’s a rundown of some of the pros of working with accounting software versus old-fashioned Excel spreadsheet tracking.
Benefits of the Cloud
For new businesses, starting fresh with a cloud solution is as easy as signing up. Established businesses, however, will need to plan their migration carefully to ensure that critical data is kept intact and everything continues to run smoothly. Major cloud accounting providers will allow seamless transition from their older, more traditional desktop-based solutions. Many business owners who migrated to cloud accounting technology have reported cost savings and greater efficiencies in day-to-day operations.
Here are the top benefits to consider when researching cloud accounting solutions:
>1. Safe storage of financial data
Cloud accounting technology can provide a more secure method of storing financial information than desktop-based software. Data is routinely backed up to servers in multiple locations by the SaaS provider, and there are no physical hard drives or computers containing sensitive data that could be stolen. Financial information isn’t kept on the premises, so the risk of fire or natural disaster is mitigated.
>2. Sync data automatically
Cloud accounting software does the heavy lifting so you can spend your time on other important business tasks. Automatically sync your bank accounts, so you won’t have to go through the trouble and inconvenience of manually importing transactions or verifying expenses. If 84% of businesses using cloud software are cutting their application costs, it’s an excellent indicator that, with the adoption of online accounting, you can, too.
>3. Pay as you grow
Growing pains are a common malady among small businesses, forcing them to choose software based on the potential for future growth. Cloud accounting software enables these forward-thinking businesses to purchase the software they need for the moment, but offering them the opportunity scale up their spending as they grow. This includes adding more storage space, users, and additional advanced features. Many business owners who migrated to cloud accounting technology have reported cost savings and greater efficiencies in day-today operations.
4. Multi-user access
In your business, it might eventually become necessary to outsource certain tasks. Implementing cloud-based accounting software will allow your business to scale as needed, but in a more cost-effective and controllable way.
Cloud accounting’s convenient multi-user feature allows businesses to offer access to financial records and bookkeeping processes to different employees. Bonus? They can work remotely, which is an increasingly necessary feature in today’s work from-home culture. This will not only streamline your business’s workflow, but it will also give you the opportunity to ask accountant any question you might have directly. You’ll have the most current information right in front of you.
5. Data accuracy
Cloud accounting programs are more accurate. Why? It’s simple. They streamline vital data-importing processes, thus removing the possibility of any double-entry mistakes as well as any other basic human errors that all-too-frequently occur.
6. Prevent unauthorized access
You protect your personal photos and Google documents from strangers; why would your accounting documents be any different? It’s downright dangerous to find unauthorized users have access to your accounting software. Simply require users to have login credentials for your cloud accounting software. This will keep any forbidden users from viewing or, worse, accessing your business’s sensitive financial information.
Periodic security upgrades and software updates are vital to ensuring that your software accounting programs are running at their best. Of course, cloud accounting software requires regular updates, too. While you’ll experience (only minimal) downtime for these updates, your cloud software will give you plenty of advance notice.
HOW WILL YOU GET PAID? WILL YOU ACCEPT ONLINE PAYMENTS?
One of the most efficient ways that small businesses maximize their sales (not to mention their success) is to offer customers a variety of payment options. When you do this, you’re not only giving customers the choices they desire, but you’re making sure that you’re actually capturing every sale possible. Though the options available for payment seem to increase every day, it’s important to develop a better understanding of many of the different ways customers might pay and determine which payment solutions might best fit your business needs.
One of the most efficient ways that small businesses maximize their sales is to offer customers a variety of payment options.
As the old adage says, “Cash is king.” That may be the case for many businesses, but is it truly applicable to your business’s customer base? Many businesses opt to rely on cash only for many different reasons—not all of them are exactly ethical. Some businesses opt for cash only to enable them to report less on their tax documents— needless to say, this is illegal and we discourage it. Not only will this put a target on your back when it’s time for tax audits, it can result in fines or even jail time. However, reputable businesses rely on cash only transactions, too. This is primarily because the merchant fees associated with processing credit and debit card payments are out of their price range. While you should definitely accept cash at your small business, it’s important that you give your customers more options.
While checks might feel like they’re going the way of the horse and buggy, but as long as there are customers who prefer to use them, businesses will continue to accept them. The challenge lies in determining whether the checks will have sufficient funds for the purchase, especially for small businesses. When a check bounces, it’s not just a drain on your bottom line, it can also lead to additional fees. If you decide to allow customers to pay by check, be cautious.
Credit card payments are second only to cash all around the world. Credit cards are convenient and simple, but this payment method does come at a cost for businesses. Most credit card companies charge an array of fees each time the card is swiped, including:
The market is overshadowed by superpowers Visa and MasterCard; they’re accepted all over the world. The runners up are American Express and Discover, but their high fees knock them out of contention for many small businesses. Regardless of which cards your small business accepts, most customers have come to expect that credit cards will be a valid form of payment for every business—failure to take credit cards can have a big impact on your business. Additionally, the latest updates to credit cards in the battle against fraud now put the onus on businesses to have the latest equipment—equipment that is compatible with smart cards or cards with the newest EMV chip technology. If your business can’t accept these fraud-reduction measures, the liability for fraudulent activity might land in your lap. NFC, or near field communication, technology is also becoming increasingly popular—this includes payment methods such as Apple Pay.
As online payments become the more secure and more convenient option for many customers, it’s smart for small businesses to hop on board. Not only is online payment beneficial for the customer, it’s also a less expensive, more reliable, and generally faster method of doing business. PayPal’s Venmo is one common method used by small businesses, as is Square Cash. Another method that’s been slowly gaining traction is Bitcoin, a secure payment solution that’s based on blockchain tech.
As online payments become the more secure and more convenient option for many customers, it’s smart for small businesses to hop on board.
Traditionally, businesses create invoices at the end of their billing periods. They’re printed, popped in an envelope, stamped, and finally mailed to the customer. While this is the way businesses have billed for decades, it’s not necessarily the most efficient way to do business. Creating the invoice is time-consuming, and relying on the postal service to deliver the invoice to the customer isn’t exactly a timesaver— and that’s if the invoice actually reaches the customer. Then, you have to wait for the customer to process the invoice, and eventually the invoice is paid. Beyond the issues with sending the invoice, there are inefficiencies related to redundancies in the process. For instance, most businesses are forced to enter customer billing information at least twice—once per account, and once per invoice. Additionally, you have to create templates for each client to be sure that you’re meeting their individual billing needs. You’ve also got to keep track of the invoices you’ve sent and whether they’ve been paid or not. This is especially challenging if you’re doing it manually, keeping them in a folder or on your computer’s desktop. Even if you decide to cut out the post office middleman and send your invoices via email, you won’t be reducing your workload by much.
Fortunately, there is a solution to the ongoing problem of invoicing. Online invoicing makes it easier than ever to send and track invoices as well as receive payment in a timely manner. You’ll not only save time, but you’ll also save money. Online invoicing will benefit your business in the following ways:
1. Invoice Immediately
If you’re accustomed to sending your invoices at the end of the month, consider speeding up the process. After all, the sooner your customers get the invoice, the sooner you’ll get paid. Invoicing software will aid in this by offering:
2. Improve Invoice Tracking
Ok, you’ve sent your invoices to your clients… now what? Most businesses simply check their bank accounts on the due date to see if the invoiced clients have paid their bill. Then, they start the arduous process of dunning the tardy clients. Invoice tracking is absolutely key for a small business; failure to track invoices can lead to neglected bills that might go unpaid forever. Online invoicing ensures that these payments don’t fall through the cracks. Your business will be paid what it’s owed, regardless of the size of the payment due.
Online invoicing makes it easier than ever to send and track invoices as well as receive payment in a timely manner.
3. Expedite Payment
Your small business depends on the rapid payment of your customers’ bills. Invoicing online will significantly decrease the time between sending the client an invoice and seeing the payment land in your bank account. You’ll find software can offer:
4. Save Time and Money
Regardless of who is responsible in your organization for sending invoices, that person is being paid to do the work. When you have software that can send the invoice automatically, that will free up the time (and the money) to be spent on other tasks.
You won’t have to worry about the complicated management of cashflow or accounts reconciliation, and you can easily track cashflow by sending clients their invoices on a routine schedule.
You’ll be free of the shackles of paperwork, and your software can generate invoices without you needing to dig out old invoices to model this month’s invoice on, not to mention the pain of numbering the invoices—your software will always remember where you are in the sequence.
REDUCE YOUR PAPERWORK
While the arrival of the paperless office has been forecast for years, but most small businesses haven’t gotten there yet. They produce reams of paper that must be handled every day—it’s got to be carefully stored, indexed, and archived, and it’s going to take up a lot of valuable real estate.
Some offices are combating the onslaught of paper by scanning and converting their documents to PDF and then shredding the original papers. But while this makes it more convenient for the future, it’s very time-consuming for the present.
If you use online invoices from the beginning, there will be no paper to store; instead, all your invoices will be neatly archived and stored electronically. While your office probably won’t be able to boast that it’s paperless, online invoices are certainly a step in the right direction toward becoming a more environmentally-friendly operation.
When you go about it properly, sending online invoices promptly will incentivize your customers to pay their bill faster. Here are additional tips to help facilitate payment in a timely manner.
BEST PRACTICES FOR ONLINE INVOICING
We’ve gathered a few of the best practices that will help you make the most of your invoicing software.
ONLINE INVOICING IS BETTER FOR BUSINESS
If your business is like most, your clients demand that you provide your services or products in a fast and efficient manner, and all too often with very little notice. It’s only fair that you expect the same when it comes time for payment. When you’re not wasting time chasing down late payments, your business has improved cashflow and you have the luxury of time to grow your business.
HOW WILL YOU KEEP TRACK OF YOUR EXPENSES?
MAIN RULE: CATEGORIZE EVERYTHING.
Organization is important, and nowhere is it more important than with your finances. Here are the five types of receipts that you must be sure to keep careful track of:
HOW WILL YOU KEEP YOUR BUSINESS IN THE BLACK?
First, let’s define what “black” means in the business world. Basically, black describes the positive balance on a business’s financial statement. If a company is profitable, it’s said to be “in the black.” This means that the company has produced positive earnings after they’ve accounted for all of their expenses. If your company doesn’t achieve this profitability, it’s described as “in the red.”
You recognize that a budget will help your business get—and stay—in the black. However, creating a budget that will line up with your business strategic plans is time consuming. All too often, businesses end up with haphazardly created budgets that inevitably leave out vital components of your spending or overestimate your growth, or worse—skip budgeting altogether.
Engaging an accounting professional to help you create a comprehensive budget is just good sense. They’ll have the experience and know-how to craft a budget that will take into consideration your plans for the year to come, as well as the current trends.
It’s also helpful to have the perspective of an outsider, particularly an outsider with accounting expertise. An accounting professional will bring up the questions that you might not even know ask. For example, have you budgeted for the increasing costs related to health insurance? What about the expenses related to new hires? An outside perspective will bring into focus details that have become so familiar to you that you might overlook them.
Whether your budget process takes a couple of days or a couple of weeks, you should bring an accounting professional into the mix as early as possible. They’ll have a better handle on what you’re trying to accomplish, and they’ll be able to offer some accountability so you’re done with your budget in a timely manner.
Nobody wants to create a budget, but putting it off can be detrimental to your business. It’s best to tackle it with help from a pro.
HOW WILL YOU HANDLE PAYROLL?
Small business owners have a never-ending to-do list, so hiring employees to help carry the load is just good sense. However, when you transition from solopreneur to employer, there’s a new skill-set you’ve got to master quickly—payroll is at the top of the list. Here are the steps to making your payroll management as smooth as possible:
STEP 1: Collect all pertinent payroll information—Of course, you’ve got to get all of the paperwork required by law, such as the Form W-4, Form I-9, ID, and Social Security card. Additionally, you need to determine whether your employee will be hourly or salaried.
STEP 2: Find your payroll system—There are a variety of ways to process your business’s payroll. These include:
STEP 3: Process the payroll—The payroll system that you choose will have a big impact on how you’ll process your payroll. Regardless of the system, you’ll need to enter the hours worked for every employee and withhold the necessary taxes. When you’ve confirmed that the payroll is accurate, you send payment to your employees by the payment method of their preference.
When you transition from solopreneur to employer, there’s a new skill-set you’ve got to master quickly—payroll is at the top of the list.
Small business owners are rarely tax experts—they save their expertise for their own industry! Unfortunately, taxes are a reality, and if you’ve got employees, you’ve got to manage payroll and income tax. Here are the taxes that every small business owner is required to withhold, deposit, and report from their employees’ gross pay:
Federal income tax—It’s your responsibility as a small business owner to withhold federal income tax based on the employee’s W-4 form. This is where they record their personal allowances. If you opt for payroll software or a payroll professional/ service, the amount withheld will automatically be calculated for you.
If you’re doing your payroll manually, you can find the wage bracket to determine how much to withhold. It’s important that you deposit your federal payroll tax payments on a semiweekly (for businesses reporting over $50,000 in taxes) or monthly (businesses reporting under $50,000 in taxes). Your schedule is determined by the IRS, and it’s dependent on your reporting of your tax liability on your Form 941.
Taxes are a reality, and if you’ve got employees, you’ve got to manage payroll and income tax.
State and local taxes—The location of your small business will determine how much you’ll need to withhold for state and local income taxes—or if you need to withhold them at all. Research your state’s requirements to learn what your responsibilities are in addition to the deposit and report schedule.
FICA (Federal Insurance Contributions Act) tax—FICA tax consists of two separate components—Social Security and Medicare taxes. Both the employer and the employee contribute to FICA, so it’s your responsibility as the employer to match the amount withheld for your employee.
Social Security tax is currently at a rate of 6.2% up to $127,200; this means that 6.2% of your employee’s wages are withheld for Social Security. Then, you pay 6.2% of the employee’s gross wages, for a total of 12.4% contributed toward Social Security. This is only applicable for employees who make $127,200 or less—that’s the cap for withholdings.
Medicare tax is currently at a rate of 1.45%. You withhold 1.45% of your employees’ gross wages, and then pay 1.45% of the wages, for a total 2.9% contributed to Medicare. Unlike Social Security, Medicare tax has no cap. In fact, employees making more than $200,000 (single), $125,000 (married filed separately), or $250,000 (married filed jointly) are required to pay an additional 0.9%. The employer is not required to match this additional contribution.
Like federal income taxes, you deposit and report your FICA tax on a semi-weekly or monthly schedule, depending on the amount of taxes you pay.
Employer-specific taxes—As an employer, you’re required to pay taxes on your employees’ wages. You’re responsible for paying FUTA (federal unemployment) tax as well as SUTA (state unemployment) tax. FUTA’s rate is simply a percentage of the first $7000 you pay to every employee who works for you. Your SUTA is dependent on the location of your business. FUTA must be deposited four times per year: January 31, April 30, July 31, and October 31.
As you start your small business, you might not consider the implications of separating your personal and business accounts. After all, when you’re the only employee, all the money’s going into the same place, right? Well, what happens when you start to grow, and you need to hire an employee or two? And what happens when the IRS comes knocking, with their hands outstretched for their share of your profits? Things could get tangled quickly, which is why we recommend that you follow one very important rule:
KEEP YOUR BUSINESS AND PERSONAL ACCOUNTS 100% SEPARATED.
Skeptical? Here are a few reasons why it’s important.
If you’re not keeping an eye on your business’s reporting, you probably don’t have a very good understanding of your business’s actual financial situation. While reports might seem like a meaningless string of numbers, when you take the time to learn what they mean, they’ll offer insight into your business that can help you set goals for the future. Here are four of the most important reports you should generate, whether you’re doing it by hand, through accounting software, or with an accounting professional.
For your small business, keeping an eye on your margin reporting is vital. Why? Well, it determines how much profit you’re taking home. There are four levels of profit that your margin analysis can report on. These include:
When you generate your cash flow statement, you’re able to view all of your company’s transactions, both incoming and outgoing, over a designated period of time. It draws from your net income as well as your non-cash transactions to create a picture of what’s been going on with your cash during the predetermined period.
Your cash flow statement takes offers more information about the day-to-day operations of your business, such as where the money’s made and how it’s spent. It focuses primarily on three types of activity:
Your Profit Loss (or PL) statement is also known as an income statement. It tells you your expenses, revenue, and costs over the course of a set period of time. It’s a window into your business’s bottom line, so it’s of interest to investors or business lenders to show the viability of your business.
The accuracy of your PL is pivotal; any inaccuracies could lead to diminished profitability ratios, which could sink your chances of securing an important loan or frighten away a potential investor, both of which could take your business’s growth to the next level.
This statement consists of two primary components: operating and non-operating. These components both encompass expenses (including rent, salaries, utilities, or bank fees as well as the cost related to goods and services that your business sells) and revenues (aka your total sales).
The balance sheet offers an up-to-the-minute view of your business’s financial health. It consists of three components: assets, liabilities, and equity.
On the left side of the sheet, your business’s assets, current and fixed, are listed. On the right, liabilities and owner equity are detailed. Ideally, the total of each side of the balance sheet will total to the same amount—if your balance sheet is actually balanced.
Any accountant will tell you that there’s one simple equation to explain the relationship between these three factors: Assets = Liabilities + Owner’s (or Shareholder’s) Equity
6. Your Accounting System
While you might not approach handling your business’s finances with excitement, it doesn’t have to be painful. If you create a well-organized, thoughtful plan in tandem with a carefully-crafted budget, maintain excellent (and accurate) records, and routinely review your results, it can be a beneficial—perhaps even pleasant— experience. Here’s a rundown of the tasks you should undertake to keep your financial house in order, and how often you should perform them.
DAILY ACCOUNTING TASKS
Keep an eye on your cash—the last thing you want is to cut your cashflow too close. Every day, be sure that the first thing you do is check to see where your cash balance sits. While it’s smart to set your expectations for what you’ll take in throughout the week as well as what you plan to spend, your cash acts as the metaphorical gas in your business’s tank. You should always know how much you’ve got.
WEEKLY ACCOUNTING TASKS
Take time to record transactions—If you’re tempted to put recording your business’s transactions off for a week, resist the urge. You should be sure to record transactions including invoicing clients, taking payments, and paying vendors at least once a week—every day if the volume merits it. You can do this manually or using an Excel spreadsheet as well as in your accounting software, if you’re already set up for that.
Keep and categorize receipts—Whether it’s digital or analog, keep a copy of every cash receipt, payment, or invoice sent. Create a vendor file for your business, sorted from A-Z for convenience, make a payroll file that’s sorted by the date the pay is issued, and, finally, start a bank statement file with the statements sorted on a monthly basis. You can scan the paper and organize everything electronically, or keep old-fashioned file cabinets, so long as you’ve got a record.
Assess unpaid vendor invoices—Keep an unpaid vendor folder, where you can store bills as they arrive. Every week, review the invoices within, and note the due dates as well as the payment due. Looking at this folder regularly will help you avoid potential late charges.
Make payments and sign checks—We assume that you’re eager to maintain positive relationships with your vendors; the best way to do this is to pay their invoices on time. Earmark the funds to make these payments in advance, and keep a copy of any invoice you send or receive.
Prep and send invoices to clients—Set a regular day to send invoices to your clients, and before you pass them along, examine them to be sure that they contain the following:
Check your forecasted cash flow—You don’t want to bounce checks to vendors or employees, so it’s vital that you keep tabs on your cash flow. Having a healthy understanding of how much money you’ll need to operate your business in the weeks and months to come will ensure that you’re not caught short. A quick and simple statement that reflects your up-to-the-moment cash status as well as the anticipated income and payments over the coming week or month will ensure that you’re in good financial shape.
MONTHLY ACCOUNTING TASKS
Balance your company checkbook—Remember how we recommended that your personal and business accounts be separated? Just as you’re supposed to balance your checkbook at home on a monthly basis, you need to ensure that your business accounts match the bank statement, too. You’ll catch any potential errors, whether they’re yours or the bank’s, before it spirals out of control.
Check in with past-due invoices—Each month, be sure that you take time to look over any outstanding receivables. Creating a column to notate aging outstanding invoices (complete with just how long they’ve been outstanding) will enable you to see who’s tardy in sending you payment at a glance. Once a month, send reminders to people who haven’t yet paid their invoices.
Check inventory—If your business is product-based, be sure that you check in monthly to see what’s selling quickly and needs to be re-ordered as well as the items that aren’t so hot and might have to be marked down to move. Routinely reviewing your inventory will help you maintain an even keel, with plenty of the popular items and fewer of those that are less popular.
Approve tax payments and process payroll—You don’t want to fall behind on your payroll taxes. Set aside a time each month to ensure that your payments are going out at the right time and in the right amount. Additionally, check over the payroll summary prior to paying your employees; this will give you the chance to make any necessary corrections.
Review reports—As we mentioned before, there are several reports that should be run monthly to keep your business on track. It’s vital that you review all of these reports, comparing them to the prior period and to your budget, to ensure that you’re on target for success. If you notice a downward trend, it’s a lot easier to correct it if you catch it in its infancy rather than scrambling to fix it at the end of the year.
QUARTERLY ACCOUNTING TASKS
Create or Review Annual Profit and Loss Estimate—Once every three months, it’s time to determine exactly how much money your business is making. Are your net profits rising or falling? Is there a drastic difference between your expenses and your revenue—and if so, why? Where are your profits being spent? All of these questions (and more) can be answered by your profit and loss estimate.
Make quarterly payroll payments and review the reports—Most states as well as the IRS demand that businesses generate quarterly payroll reports with the purpose of collecting quarterly payments. If you’re using an accounting pro, they’ll complete and file these reports, but it’s smart for you to review them.
Make quarterly sales tax payments and review reports—This task is dependent on which state your business operates in. If your state does require sales tax, you could incur significant penalties if you don’t make the payments.
Determine estimated income tax and pay the bill—This is where your Profit and Loss report will come in handy. You can review it to determine if you owe estimated taxes for the quarter, and if you’re not sure, consult an accounting professional.
ANNUAL ACCOUNTING TASKS
Examine past-due invoices—While you’ve been reviewing these receivables each month, now’s the time to make some decisions. Which clients do you feel will pay, and which need to be sent to collections? Are there accounts you need to write off? You want to start the new year with as clean a slate as possible.
Check your inventory—Again, you’re reviewing it regularly, but you need to figure out the value of any product that has not been sold; you can deduct any inventory that’s been written down on your end-of-year taxes. Failure to do this will result in you paying more taxes than you technically owe.
Fill out tax forms—Specifically, your W-2 and 1099-MISC forms, which are due by January 31. These forms enable you to report the annual income of your full-time employees and independent contractors, respectively. You must also mail these forms to all employees prior to the January 31 deadline, unless that employee earned less than $600 over the course of the year.
Complete and approve annual financial reports and tax returns—Tax time is an ideal time for you to examine your business’s financial reports prior to handing them over to your accountant, assuming you’ve hired one. These reports will be what you use to check your tax return, so it’s important to review everything for accuracy prior to signing off on anything.
HIRING AN ACCOUNTING PROFESSIONAL
If you’re overwhelmed by everything you must do to keep your small business’s finances afloat, it’s important to remember one thing: you don’t have to do it alone. At any point, you can turn things over to an accounting pro, who will assist you with as much or as little of your business’s accounting as you wish. Here are a few questions you should ask before you hire an accountant.
1. May I see your references? Before you entrust your sensitive financial information to an accountant, get a little information about their background. Perhaps you have associates who have worked with the accountant, but if you don’t, a qualified accountant should be able to furnish the contact information of some previous clients so you can ask questions about their experience. Additionally, confirm that their certification is on the up-and-up.
2. Have you worked with small businesses before? A small business’s accounting is very different from that of a large company. It makes sense to work with someone who has experience with small businesses, so they’ll understand your particular needs, especially within the realm of taxes and payroll. You should also ask if they’ve got experience within your particular industry, especially if there are factors that could impact your tax filing or payroll.
3. What services do you provide? If you’re seeking a full-service accounting pro, you don’t want to hire someone who limits themselves to tax prep alone.
4. What do your services cost? This is the biggest question of all. Even if they tick every other box, if they’re out of your price range, it’s not going to be a good fit. The last thing you want to do is explode your budget to get accounting assistance.
In addition to asking these questions, it’s also important to determine ahead of time what you’re looking for in an accountant. There are different ways to interact with your accountant, including: