How Can Accounting Help Your Business ?
Accounting doesn’t just make life easier at tax time and give you a better idea of how your business is doing financially. Accurate accounting can also make you more attractive to clients. Here are some common ways proper accounting can help make your business more valuable for your clients -
1.) Financial Stability
When your business finances are in order, you have an accurate view of how much money is coming and going. You can also create more accurate forecasts for future revenue and expenses, so you can make sure you have enough cash reserves to float you through any tough times.
With stable business finances, you can offer your clients a consistent, positive experience. You won’t need to cut costs unexpectedly because money is tight, so you won’t suddenly cut down on employees or take on so much new business that the quality of your work suffers.
2.) Greater Efficiency
Proper accounting offers you up-to-date financial data about your business. And that can help you make crucial decisions about the need for, and timing of, new business investments. Could new equipment make you work faster? Could it mean you deliver better service to your clients?
Accurate financial data helps you decide whether it’s the right time to invest more cash in your company and how those expenses will affect your cash flow.
3.) Smarter Marketing
Financial records offer you insights into your expenses and cash flow, which in turn can help you make better decisions about marketing your business.
Accurate accounting information can help you decide the right time to launch a marketing campaign and understand whether your marketing efforts are delivering the results you want.
What are the Basics of Small Business Accounting ?
Now that you’ve got a handle on how accounting can help your business, you’re ready to dive into the basic principles of small business accounting. There are three main areas of effective small business accounting -
1.) Master Basic Bookkeeping
Don’t let the name intimidate you: bookkeeping just refers to keeping track of your business transactions, from revenues to payments. One of your main business goals is probably to make money, and to do that, you’ll need to know how your income compares to your costs. Proper bookkeeping can help by -
Letting you know if you’re making a profit, or if you’re on track to do so
Telling you whether you’re in danger of running out of money
Simplifying tax season by recording information you’ll need to file taxes
2.) File Your Business Tax Returns
Tax season can be a stressful time for freelancers and small business owners, and for good reason: filing taxes becomes more complicated when you’re self-employed. But with proper accounting throughout the year, you can lessen tax-time headaches.
There are different types of business taxes and they vary by industry and by state, but some of the most common include -
Income Tax : Which requires you to pay a portion of your income to the government.
Sales Tax : Depending on the type of work you do for clients, you might add sales tax to your invoices that you later pay back to the government.
Employee Taxes : If your company has staff, you’ll collect taxes from your employees’ paychecks and pass that on to the government.
3.) Create Financial Reports
Accounting reports can help guide important business decisions. You probably face tough choices often—whether to buy pricey equipment for your business, what specific services to offer clients or whether to hire contractors to help with your workload.
There are a number of accounting reports that can help you make these decisions. Some of the most common reports include -
Cash Flow Statement: Shows you all your financial activities, from the money flowing into your business (earnings from clients) to the expenses moving out (for rent, utilities, staff and more). Clearly, this is an important report to get right. In fact, a study by US Bank found 82 percent of businesses fail because of cash flow problems.
Profit and Loss Report: Shows your total income and your total expenses for a specific time period. It’s not quite as detailed as your cash flow statement, but it offers a helpful overview of where your business stands financially.
Balance Sheet: Shows what your company owns versus what it owes for a specific time period. In other words, it gives a snapshot of your financial position at any point in time.
Do Small Businesses Need Accountants ?
A good rule of thumb to follow: if managing your business accounting starts getting in the way of completing projects for your clients, you should consider hiring an accountant. Or you might feel better working with an accountant at tax time, or to address certain questions related to your small business. Ultimately, the decision is yours.
Accountants can help small businesses in many ways, including -
Finding the best business structure to suit your needs, from a sole proprietorship to a corporation.
Preparing the financial documents included in your business plan
Providing advice on opening business bank accounts
Managing payroll processes
Preparing your tax returns and finding tax breaks that apply to your business
Close your books at the end of the year and create financial reports
Help you navigate a tax audit, if that problem ever arises
If you do choose to work with an accountant, it’s up to you how many of your financial tasks to hand over. You might just want to consult an accountant while you’re launching your business, or maybe you’d like to hand over all your financial documents at tax time so they can file your tax return.
