There is a massive influx of small business owners in the market. These businesses need a customized accounting solution. Start-up entrepreneurs have built amazing teams, built an awesome customer base and a diverse workplace. However, accounting and bookkeeping are not a priority for these businesses.
Lately it’s been estimated that 1/5th of small businesses in the US are not using any bookkeeping service of any type. This will lead to problems at many levels soon. There are multiple accounting firms and consultants that enable start-ups and small businesses by customizing their accounting needs. These firms perform single task to full-service accounting. They also support tax filing for where you are based.
You should be able to have a clear financial picture of your business at any point in time to the future of that business. Below are some basic accounting practices that one should keep in mind:
- Cash: Cash is King. Initial business expenses are usually in cash It is so important to record all the expenses and income properly. This is because these transactions will have to pass through the cash account. You should be able to provide the cash receipt and cash disbursement to your accountant.
- Account Receivables (AR): Receivables involves recording and collecting money from customers for the invoices that have been raised. The sooner your customers pay the more cash you will have to re-invest in your business. Although cash sales in great for business, that will mostly not happen. Most businesses run on credit. Credit terms need to be as per industry standards or as per the competing businesses. Proper recording of the credit sales is very crucial for the business.
- Inventories: This involves keeping an accurate account of sold and unsold products by looking at the records and doing a physical count of the products. Always do a thorough check as these products represent cash sitting in your store or warehouse.
- Loan Payables: This is to account for all your borrowings or the debts you take for the business. This will involve loans from banks or financial institutions. Accountants and Bookkeeping service providers will need proper documents and paperwork for this. These are liabilities that need to be paid within a stipulated period.
- Sales: The revenue is the lifeline of the business. It’s important to track every dollar derived from your products and services. This should be done immediately. It impacts inventory and Cash accounts directly.
- Purchase: All businesses need initial investment. Each purchase needs to be recorded accurately with the date and dollar amount and a detail of what it pertains to needs to be mentioned.
- Payroll: In most companies, payroll is the highest expense category. It involves employees pay, their withholdings and employer’s match. There are taxes as well and hence important to keep a detailed record of each payroll entry because a small error could be fatal when it comes to payroll tax payments and lead to more expenses in your business in terms of penalties.
- Owners’ Equity: This represents the amount invested by founders into the business and what percentage is held by whom. The equity ownership will dilute as the number of investors increase. A full “Cap Table” (Capitalization table) is maintained and updated at every round of financing.
- Retained Earnings: This represents profit made from business which is reinvested into the business.
These are the basic categories that need to be kept in mind when starting your accounting. A thorough recording of each dollar spent and earned is very crucial.
In case you have challenges operating with bookkeepers in your area due to “one size fits all” you can consider hiring a virtual accountant or bookkeeping service provider. There are many of them out there who will customize the accounting based on your business needs and their objective is to support businesses like yours.