There are numerous engaging and fulfilling tasks that a new small business owner must take on in pursuit of their dream, but for most, accounting — unless you're an accountant, of course — just isn't one of them. If you're like most entrepreneurs and business owners, the only number you really care about is the one you see at the top of your bank account each month, but there are others (many, MANY others) that are essential to the success of your business.
So, unless you plan to hire out for small business accounting services, you'll need to make sure that you have a decent understanding of what is required to keep your books in tip-top shape.
DIY Bookkeeping: What Do You Need to Know?
If you wish to run a successful business, specifically one where you're able to stay on top of your incomings and outgoings, there are several actions you can take right from the start. Being proactive about these action items will save you a lot of time and headache later, so even though you may be chomping at the bit to serve your first few customers, it's important to do things right the first time around!
Set Up a Business Bank Account
This might be Small Business 101, but it shouldn't be overlooked. The only way to track exact amounts that enter and exit your accounts is to ensure that you have a business account for business purposes.
Every bank offers different types of business accounts that vary depending on your needs, but speaking to a business banking representative at your chosen bank is a good first step that will set things straight from the get-go. It's likely that you'll need to provide business documentation in order to open an account, so be sure to check with your bank before you show up.
Keep Your Business and Personal Finances Separate
We cannot stress this enough: Nothing could make your business more difficult than trying to operate out of your personal bank account. Whether you're running things as a sole proprietor or if you've registered your business as an LLC or other entity type, you're able to write off various business expenses.
Every time you purchase something for your business, be it supplies, equipment, software or anything else, executing the purchase from a business bank account will make it infinitely easier to track and report than if you whip out your personal credit card.
Keep Track of All Business Expenses
Just to really reinforce those last two points, you'll want to keep track of every penny you spend on your business for tax purposes. In order to report accurately, you'll need every receipt documented and accounted for (there are fairly simple ways to do this, which we'll cover a little further down the page).
But here's a preview of some common expenses to track: fuel, mileage, business lunches/dinners, office supplies, computer hardware and software, phone bills, internet services, materials, rent, electricity, heating and cooling, insurance and anything else that is purchased for business use.
Understand Your Tax Obligations
If you're going to manage your own bookkeeping, you'll need to pay attention to tax obligations for the state in which you operate. You'll need to charge sales tax on your products or services, but you'll also be responsible for taxes related to employment (if you hire employees) as well as on your income. Corporations have different tax obligations, though DYI bookkeeping isn't recommended if that's the case.
Small Business Accounting Software
To make things easier for yourself and to save money, you'll want to review business accounting software options that will enable you to track and monitor your incoming payments and outgoing expenses. There is no right or wrong answer here, but doing some research will help you decide on which type or brand of software to use for your small business accounting needs.
Here are a few tips for things to look for in your search:
You might be wondering if you should tackle your bookkeeping at all or whether it's best left to professionals — and that's okay! After all, unless your business actually is accounting, chances are you didn't start out on your venture with the dream of dealing with copious amounts of numbers and tax codes.
Small business accounting comes with challenges that can be frustrating to many owners, the least of which is simply ensuring accuracy in your reporting. Mistakes can be costly as you might end up owing penalties and interest on accidentally unpaid taxes, and coming up short at the end of the month is no picnic.
What If You Take a Business Accounting Course?
Many small business owners may elect to take a business accounting course to help them understand the many nuances of bookkeeping best practices, and these types of courses can provide a lot of information that will help to keep things on track and organized.
That said, there are only so many hats you can wear at once, and if you're itching to simply provide value to your customers through the sale of products and services, schooling might not be high on your list of priorities.
Should You Hire for Business Accounting Services?
When starting out, many business owners won't have the capital to invest in professional bookkeeping services, though there are many options to fit every budget. You don't have to hire a large accounting firm to manage your mom-and-pop shop, and even as you grow, there are relatively inexpensive ways to hire out for business accounting services.
For example, Incfile's Accounting and Bookkeeping service is a great way to stay on top of your incoming payments and outgoing expenses without breaking the bank, and the best part of all is that we'll grow right alongside you.
Whether you choose to hire a professional or stick to DIY bookkeeping solutions, remember to stay focused on what you do best. If that's accounting, great — but don't lose sight of the main reason you started your business in the first place!
Chad is a freelance writer and former project manager focused on presenting information on SaaS, technology and business formation.