Launching a new business is an exciting part of life. It can be pretty tempting to focus all your efforts on the areas of entrepreneurship that offer the maximum reward.
Nevertheless, it’s essential to ensure you don’t lose sight of the less exciting but equally important aspects of operating a business, such as accounting. The first and foremost thing you need to put into place is the finances. If your business accounts are not handled properly, you can end up in major trouble when it comes to managing cash flow and taxes.
In addition, getting your accounts right can set the tone for your business, leading to increased profits and higher success in the long term. Finally, remember that preparing and managing your small business’s accounts requires little math skills. Yet, all you need is a primary understanding of finance. To simplify things, we discuss some critical accounting tips for small businesses in this article.
Tip #1 – Get the Accounting Basics Right from the Start
When running a business, you need to focus on the control aspects of a business’s management. Sadly, several new businesses fail, not because they lack creativity, ideas, or entrepreneurial spirit, but because they don’t have control and insights into the finances.
Remember, even if you don’t have a solid financial background, failed math at school or have a fear of numbers – you have to understand the financials. Here are some things you can do to get the accounting basics right from the start-
Maintain your records from the start, regardless of how basic they are.
Register your company with Companies House or your business with HMRC.
Open a business bank account.
Tip #2 – Separate Your Personal and Business Expenses
One crucial step you need to take as a small business owner is to open a business bank account. You can do this after you have obtained your Employer Identification Number. Business bank accounts provide multiple benefits over personal bank accounts. These advantages include:
Making it simpler to monitor and validate business expenditures to benefit from tax deductions.
Providing personal liability protection by keeping personal and business funds separate.
As a small business owner, you must open savings and checking accounts. In addition, you should also open a merchant services account and credit card account. This will allow you to accept your customers’ debit and credit card transactions.
Tip #3 – Manage Your Cash Flow Effectively
You need money to pay your bills. Businesses that are unable to pay their bills end up in failure. Minimise this risk by ensuring that you know and understand to who you are offering credit, that your VAT return is up to date, and you’re in control of your costs.
Manage your cash flow meticulously and keep an eye out on who you owe money to and who owes you money. Always prepare for what money you have coming in and going out – account for the non-financial along with the financial, i.e., usage of stock and assets. Take credit when you need it but make sure you can pay it once it becomes due.
Tip #4 – Be Legislatively Compliant
This can be tricky, and it will take time to understand your compliance responsibilities and work accordingly. That includes everything to do with tax, payroll, VAT, and any modifications in business legislation, such as RTI, that were enforced in 2014.
It can be tough to think about the wealth of legislative changes that can take place in 12 months. Thus, it’s worth looking for accounting data that updates automatically. This will help you stay compliant with regulations and allow you to categorise expenditure and income to generate business insight.
Tip #5 – Invest In an Accounting Software
When it comes to small business accounting, using online accounting software such as Xero, QuickBooks, Sage, Zoho are an excellent option. Intuitive online solutions have several benefits that allow you to get organised, save time, and understand your finances.
Online accounting software that connects to import transactions from your bank using bank feeds makes the accounting process even simpler. In addition, it allows you to record the transactions in your software without worrying about forgetting anything.
Online accounting software allows you to manage your bookkeeping, invoicing, and expenses easily. This makes it easy to create, send, record, and track invoices to your account without switching between various software. In addition, tracking your expenses is much simple with online software. It speeds up the process of preparing your Self Assessment Tax Return.
Accounting software will also give you an accurate snapshot of your financial health with deeper insight into expenses, profits, losses, tax summaries, etc.
Tip #6 – Separate Accounting Duties
Public companies must follow the rules and regulations that demand controls to ensure the separation of responsibilities. Small businesses generally have one person managing multiple accounting functions. Unfortunately, this increases the chances of accounting errors and fraud.
The good news is that small business owners can reduce this risk by implementing a set of simple controls. One reasonable control is ensuring the same employee who writes the checks doesn’t sign them and reconciles the bank statements.
Tip #7 – Seek Professional Help for Tax Preparation
According to the 2018 survey, one—third of small businesses reports spending over 40 hours every year on taxes. It is unsurprising then that almost two out of three small businesses pay a tax accountant to manage their taxes. There are even more advantages here for a sole proprietor, as the cost of recruiting an individual to prepare your business’s tax return is tax deductible.
Last Few Words
By taking steps to establish robust accounting processes from the beginning, start-ups and small businesses increase the probability of success. Keep in mind that the more you review your financial numbers, the better it is for your financial health, which should eventually lead to long-term success.
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