1. Track Expenses
As soon as you start your business, separate your business from your personal accounts. This helps you track income and expenses and plan for taxes. Additionally, if you’re facing an IRS audit, combined expenses can create a logistical nightmare. To avoid headaches, open a business checking account.
Another good strategy is to open a business credit card to avoid mixing personal and business expenses. If used responsibly, you can build good business credit. When you’re applying for outside funding, lenders look for strong credit history. Having a financially healthy business means you’ll have a better chance at getting low-cost funds when you need them.
2. Pick a Bookkeeping System
Shoebox accounting (tossing everything together and sorting it out later) can lead to big headaches! You need an accounting system that’s cost effective, up-to-date, and can handle all financial tasks you need to run your company. If you’re not happy with your current system or need to establish one, consider a free accounting software system. Use this post from the SmartBiz Small Business Blog to help you choose a system that will work for you: 8 Best Free Accounting Software Systems for Small Business.
One bookkeeping decision to make is to pick either single-entry or double-entry accounting. This article gives information about the two to help you choose which method is best for your business: Double-Entry Bookkeeping vs Single-Entry Accounting.
3. Enroll with a Payroll Provider
Staying on top of payroll can be time-consuming. Luckily, there are plenty of tools out there for small businesses to hand over payroll management to the professionals. Here are top picks for payroll solutions, along with quotes from real small business owners like you, so you can make a more informed decision: 7 Best Payroll Tools for Small Business.
4. Track Labor Costs
Labor costs make up the largest percentage of most companies’ operating expenses. However, there are many businesses that don’t store, or review, data on employee time and attendance.
Modern technology has made tracking labor hours easier than ever. Review this article outlining the importance of tracking these costs: 3 Ways Automated Time Tracking Helps Your Small Business.
5. Become Familiar with Small Business Taxes
If you own a small business, you’ll be responsible for a number of business taxes and navigating tax laws. Your taxes can influence decisions about how you organize, staff, and run your business. Tax considerations also guide your pricing strategy for goods and services.
Types of taxes you might be responsible for include:
- Income Taxes
- Self-Employment Taxes
- Payroll Taxes
- Unemployment Taxes
- Sales Tax
- Excise Tax
- Property Tax
Visit the SmartBiz Blog for in-depth information about each: 7 Small Business Taxes You Need to Know About. Here’s a good resource if you’re considering hiring a tax professional: Small Business Taxes: Self-File or Use a Professional?
6. Learn Accounting Language
If you don’t have a financial background, you might not be familiar with important accounting terms. The QuickBooks blog has a helpful article here: 24 Accounting Terms Every Business Owner Needs to Know. Terms you should know include accrual basis accounting, capital, depreciation, and revenue. For a deeper dive, check out the SmartBiz Loans Glossary of Terms. You’ll learn about important metrics and ratios considered by banks when applying for low-cost funding.
7. Maintain Inventory Records
Shrinkage is the loss of inventory that can be attributed to factors such as employee theft, shoplifting, administrative error, vendor fraud, damage in transit, or in store and cashier errors. In order to keep track of inventory loss and put systems in place to combat it, you must keep accurate records. For more information about loss prevention, visit the National Retail Federation, the LPM Media Group or the Crime Doctor Blog.
8. Create Future Financial Projections
Looking at future financial projections is also known as “forecasting”. Business forecasting helps small business owners predict growth and identify where to tighten up expenses or work to expand sales.
According to ecommerce provider PrestaShop, forecasting can be great tool for many business functions including:
- Forecasting expenses
- Inventory reordering
- New product performance
- Evaluating marketing efforts
- Predicting revenue
One of the main reasons small businesses fail is because they run out of money to spend on their costs. Forecasting correctly can help prevent this. An accountant or other financial professional can help you with this important financial step.
The SmartBiz Small Business Blog has a wealth of resources you can use when setting up your small business accounting systems. Review these easy-to-digest articles for in-depth information, software recommendations, and more.
- How to Make A Financial Plan for A Business In 6 Steps
- All About Small Business Financial Management
- Best Small Business Accounting Tips