Small Business Accounting DIY all in 10 Easy Steps
If you own a small business or if you are just starting out with a new online store, then surely, you are aware of the countless tasks to add to your to-do list. Every step is important when you are just starting out, but first things first, you need to get on top of the accounting tasks that come along with owning a business.
Step 1: You need to open a bank account. Once you are a legally registered business, you need a bank account to put your business income in. You need to have a separate bank account for your business and for your personal use. Keeping these two separate will keep the records clear and distinct which will make taxation easier.
Step 2: You need to track your expenses. You need to be able to track your expenses effectively in able to monitor your growth efficiently. Monitoring your expenses and growth is important in building financial statements, keeping track of deductible expenses, preparing tax returns, and supporting your report on your tax return.
Step 3: You need to develop a bookkeeping system. You first need to understand what bookkeeping is and what it does. Bookkeeping is the daily process of recording transactions, categorizing them, and reconciling bank statements while accounting is a high-level process that involves analysing the data compiled by the bookkeeper.
Step 4: You need to set up a payroll system. Even a small business would have one or two staff running the show. You will be needing to establish whether the professional that you have hired is an employee or an independent contractor. You also need to decide on a payroll schedule and make sure how much you are paying the independent contractors.
Step 5: You need to investigate import tax. Depending on what your business model is, there may be a chance that you would want to purchase import goods from other countries for your business. You need to be familiar with the fees that your country/state/area imposes on incoming goods.
Step 6: You need to decide how you will be getting paid. The payment type is also important when keeping track of your transaction. Determining your payment medium will help you know what needs to be prepared. Will you be needing a merchant account, a Paypal account or will you only be accepting cash?
Step 7: You need to have a sales tax procedure. Customers pay the sales tax of the state or province where they make their purchase in. If you have a physical store, then there is already a solid sales tax procedure for you to follow. However, when you are selling online, you would need to do more research on this matter to be able to establish a sales tax procedure.
Step 8: You need to understand your tax obligations. Each legal structure of a business has different tax obligations. For example, if your business is under sole proprietorship, LLC or partnership, then you need to claim business income on your personal tax return. Meanwhile, corporations are separate tax entities and are taxed independently from owners.
Step 9: Learn how to calculate gross margins. The first step to earning more income in your business is improving the gross margin for your business. This is why you need to know the costs acquired to produce your product. The difference between how much your product is sold versus how much your business is actually taking home is what determines the progress of your business.
Step 10: You need to re-evaluate your methods periodically. When you are just beginning your business, the use of a simple spreadsheet may suffice, but as your business grows, you will be needing more advanced methods to manage your accounting tasks. You need to check once in a while if your method is still effective and apply any necessary change that you may have in mind.
Accounting for your small business can be a little challenging but certainly, achievable.
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