As per the Bureau of Labor Statistics, 20% of all startups do not survive beyond the first year, and just 30% of all businesses are still operational after a decade. Often, the primary reason behind this failure is the ineffective management of cash flow.
For this reason, Rizwan Ahmed CPA has come up with several valuable accounting tips for small businesses.
Accounting Tips for Small Businesses:
Tip 1 – Separate Your Personal and Business Expenses:
As the owner of a small business, one of the first and most important steps that you should take is obtaining a separate bank account for your business transactions. You can do it once you have your EIN (Employee Identification Number); sole proprietors can use their social security number instead of the EIN. Rizwan Ahmed CPA lists down the primary benefits of having a dedicated bank account:
- Making it simpler to record and track business-related expenses which, in turn, will make it easier for you to receive tax deductions
- Providing personal liability protection by separating business and personal funds
- Offering a line-of-credit option that you can leverage to cover temporary gaps in cash
Besides saving, checking, and credit-card accounts, you should also consider opening a merchant services account; this will allow your business to accept debit and credit card transactions from buyers.
Tip 2 – Use Accounting Software:
Rizwan Ahmed CPA feels that accounting software is particularly important for small business owners, especially since accounting is often not a part of their skill-set. You can either use the software program yourself, or allow your accountant or bookkeeper (should you hire one) to securely access it.
There are plenty of effective and affordable programs designed specifically for small businesses. By allowing you to link your business credit card and bank account, the software will track all expenditures and incomes, divide them into relevant categories, and even allow you to send and pay automated invoices. Most programs also generate intuitive yet insightful reports that can be used to understand and improve the financial health of your business.
Tip 3 – Understand Tax Rules:
As far as tax is concerned, you need to familiarize yourself with all the rules and identify the ones that apply to your business. Thoroughly research taxes like VAT, corporation tax, National Insurance, and income tax. Also look up the tax rates for each type of tax.
Tip 4 – Maintain Organized Records:
It is fine if you prefer a bit of clutter in your personal life. However, when it comes to business, maintaining tidy and neat records is no longer a mere choice.
Organized recordkeeping means that your files and documents will not be sprawled all over the place, and it will be easier for you to find them whenever you have to. This is a habit that you will thank yourself (and Rizwan Ahmed CPA) for, especially when those dreaded tax deadlines start sneaking up on you.
Effective accounting and cash-flow management is a vital faucet for the survival and growth of any business. We hope that the above tips by Rizwan Ahmed CPA will help you understand and fulfill the accounting needs of your new venture.