If you are considering beginning your own business, there are a few important small business accountant things you need to be on top of involving the accounting tasks which come with owning your store. Many can agree that accounting may not be the most exciting part of establishing your business, however, it is a crucial component to ensure that your business is stable from the get-go. A small business accountant will be able to handle your accounting duties on your behalf, allowing you to focus on other important aspects of your business.
Follow this article where the basics of small business accountant-related topics will be discussed. SureBooks is here to help you progress to the next step on your small business journey. Our small business accountants will help you manage your business with ease.
What Is Small Business Accounting?
Small-business accounting is a form of financial activity for the measurement, communication, and processing of the finances of a business. These financial activities include the following; management, taxes, acquisition, payroll, and inventory. Here are 9 Accounting basics for small businesses:
1. Open your small-business bank account
It is important to have your own separate business bank account to protect your assets in case of unfortunate situations such as lawsuits, audits, or bankruptcy. If you want some form of funding in the future, either from investors or creditors, then having strong business financial track records could increase the chances of approvals.
Begin by firstly, opening up a checking account followed by opening up any form of a savings account, this will assist you with arranging your cash flow funds as well as assisting you with the planning of your taxes. For example, you can create a savings account and then take some of the money as a percentage of every payment as your self-employed tax withholding. A good rule to follow is to remove 25% of your income and put it to the side, however, if you are a higher earner you should put aside at least a third of your income.
Secondly, now that you are the owner of a small business, you may want to contemplate getting a credit card for your business so that you can begin building up your credit score. Having a good credit score is important as it can secure funding, in addition to potentially financing big purchase orders in the future. LLCs and corporations are required to utilise different credit cards to avoid mixing up their business and personal assets.
Irrespective of the type of transactions your business is making, having different credit cards does have different benefits for your business. For example, if you are thinking of spending more money on travel, a business credit card that offers you miles could be ideal for you. You will require a business name, and you may need to be registered with your province to open a business bank account. You will need to clarify with your specific bank to check which documents they require. If you would like further assistance, you can make use of a small business accountant to guide you.
2 .Track your small business expenses
For a business to have solid foundations, it will need to have a bookkeeping system which is accurate and effective in expense tracking. This is an important step as it allows you to build financial statements, track the growth of your business, make preparations for tax returns, help you stay on track of your deductible expenses, and permit your filings.
In the beginning, create a small business account system like an accounting system to organise important records as well as receipts. This process can either be done old school and simple or through a service, e.g. ShoeBoxed. The following is a list of 5 different types of receipts you should pay attention to:
- Entertainment and meals: Hosting your business meeting at a restaurant or a café is an excellent option. Also, make sure to take lots of photos for documentation purposes. On the back of your receipt record the purpose of the outing as well as who served you.
- Out-of-town travel: The CRA and IRS are suspicious of people declaring personal costs as business expenses. Luckily, your receipts will serve as proof of your business outing expenses.
- Vehicle-related expenses: Document when, why, and where you used your car for business endeavours, then add the percentage of use into your vehicle-related costs.
- Receipts for gifts: With regard to gifts such as tickets to a show, it is important to know whether the person who gave the gift goes to the show with the receipt. If that is the case, then the expense would normally be placed under an entertainment cost instead of a gift. Write these details on the back of your receipt.
- Home office receipts: Comparable to vehicle expenses, you will be required to calculate what percentage of your home do use for business-related matters and add it to the percentage of home-related expenses.
To ensure that your overhead costs remain low in the beginning, starting your business at home helps this. In addition to this, you will qualify for special tax breaks. You will be able to subtract the amount of your home that is utilised in the business, including your cell phone, transportation, internet, business errands, and any work from home.
3. Develop a bookkeeping system
To ensure that your small business account is taking note of all the costs, bookkeeping is a process used daily to record business transactions, reconcile bank statements, and categorise them. Accounting is known as a high-level process which looks at a business’s progress and understands the data a bookkeeper gathers in financial statements. New entrepreneurs need to determine for themselves how they want to handle their books:
- Some entrepreneurs decide to go the DIY direction and utilise software such as Wave, or QuickBooks. However, if you do not want to go that route you can even use an Excel spreadsheet.
- If you have a big business, you can also hire an in-house accountant or bookkeeper.
- you can also use a part-time or an outsourced bookkeeper who is either cloud-based or local.
With many different free and paid accounting software options available you will find a bookkeeping solution which will suit your specific business requirements. A Small business accountant can help through this process if you get stuck at any point.
4. Set up a small business payroll system
Plenty of stores online begin as a one-person project. But as many small business owners can say there comes a stage where one needs to hire outside assistance. For this to happen you need to determine whether this person is an independent contractor or will they be an employee of yours.
If they are an employee you will have to create a payroll schedule so that you can ensure you are confining to the correct taxes. There are various services available which can assist you with this process, and lots of accounting software options that provide a payroll feature if you would like to use this route instead.
If you decide to use independent contractors, ensure that you track the amount to pay each individual. Some small business owners are sometimes required to file 1099s for each contractor at the end of the year. This process can be made easier by using a small business accountant from SureBooks.
5. Investigate import tax
Depending on how your business model looks, you may be considering importing goods and products from other countries so that you can sell them in your store. Part of the process of importing goods is paying duties and taxes, so that the product may enter your country. This is important to remember if you are running a drop shipping business.
If your business does require you to import goods, having a duty calculator will assist you to estimate the fees within your business and plan for costs. Having a small business accountant can make the process and understanding of import taxes a little bit simpler.
6. Determine how you’ll get paid
The moment that sales begin to roll in, you will need to be able to accept payment. You can utilise Shopify as a method of accepting payment for both credit and debit card orders (depending on which country you live in). This method saves you the struggle of setting up a third-party payment gateway or a merchant account.
To accept payment through Shopify you will be required to have a merchant account or you can use PayPal, which is a third-person payment processor. Merchant accounts are a form of bank account that enables your business to receive credit card payments from your customers.
It is important to remember that if you utilise a third-party processor, fees will differ. Some processors charge a flat rate for every single transaction, and others charge an interchange plus rate.
7. Create sales tax procedures
The universe of eCommerce has made it simpler than ever before to sell to an individual outside of your province and even country. Even though this is an amazing development for many businesses to grow, it does introduce sales taxes regulations which can be confusing and could cause headaches in the future.
8. Establish your tax responsibilities
Tax responsibilities can vary depending on what your business structure looks like. If you are in a partnership, self-employed, or sole partnership then you can claim your business income by using your tax return. On the flip side of that, corporations have separate tax constituents and owners are taxed independently from their business. The income you receive from your corporation will tax you as an employee.
If there are any doubts in your mind about prospective tax obligations, it is advised to first discuss all of this with a tax professional. Regardless of the price, you will save on your time and money in the future. A small business accountant will be able to assist you with the procedure as well.
9. Work out gross margin
Refining your store’s gross margin is the initial step towards acquiring a better income overall. For this to happen you will need to calculate your gross margin. You will also need to work out all the costs which were involved in the production of your product. To calculate this, you can either manually work out the costs or you can utilise a free profit margin calculator, which can be found online, to be able to insert your numbers for a fast calculation.
Establishing a small business can be quite a stressful and overwhelming process. You will need to do your homework concerning your transaction management, banking, fundraising, as well as other accounting topics. You will also be required to have your store’s finances in order from the very beginning. For more information regarding hiring a small business accountant, get in contact with SureBooks today!