Small business and startup owners are swamped with way too many tasks on their daily to-do lists. Entrepreneurs need to stop doing their own accounting. The added pressure will only make it difficult for most contractors to manage other dominant aspects.
Accounting is not a strong suit for all contractors, and that is completely fine. But just having some basic information on how to manage the company’s accounts will help in the long run, don’t you think so?
For owners with limited or no accounting knowledge, it can be quite difficult. But what if I share some pointers that can help you manage your operations smoothly, prevent audits, and plan for the future?
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It is possible with these particular accounting tips for contractors. These tips have helped many other contractors take better control of the business’s finances.
Table of Content
- 14 Useful Accounting Tips for Small Contractors
- Separate Your Business Bank Account & Personal Bank Account
- Invoice Accurately
- Keep an Eye on Accounts Receivables
- Create a Budget for Meeting Goals & Objectives
- Keep Separate Bank Account for Payroll
- Automate Accounting Process
- Keep Your Books Updated
- Use a Bookkeeping or Accounting Software
- Profit and Loss Statements
- Expect High-cost Business Expenses
- Always Get Receipts
- Avoid DIY Accounting
- Record & Track Every Business Expense
- Hire Professionals for Tax Preparation
- Which Small Business Accounting Tips Will You Try First?
14 Useful Accounting Tips for Small Contractors & Startup Owners
Separate Your Business Bank Account & Personal Bank Account
As a small business owner, the last thing you would want to do is search through your personal account for that one business transaction. The more organized you are, the better it is for your business’s financial health.
Even if you are spending your personal funds on your business, you must keep your business revenue and expenses completely separate from your personal expenses.
Keeping a separate business checking account has many benefits.
Want to know them?
With separate personal and business bank accounts, business owners can:
- better manage and organize your business activities
- reduces stress and confusion while filing income taxes
- helps you be more legitimate and professional
- keep a clear audit trail
- accurate cash flow management
- keep the funds in your savings account secure
Moreover, you should keep the business credit card and personal credit card separate for that matter.
Invoicing is an important part of any business. It is a major step in the business process that can often feel burdensome and time-consuming. Minor mistakes in your invoices affect the ability to get paid.
Invoices need to cover all the specific information regarding the transaction and must be sent out in time. For this, you need a good invoice generator to help you carry out this task.
You must look for the following features in an invoice generator:
- Invoice templates for different types of businesses;
- Customizing invoices;
- Sending out invoices to clients and tracking them;
- Real-time notifications;
- Generate reports; and
- Accept payments through different gateways.
Invoicing for small businesses can help in the following ways:
- Proper invoicing works as a good tool for record-keeping;
- Helps you present a professional outlook of your small business or brand;
- Works as a legal proof for a promised service; and
- Helps you keep your sales more organized.
Keep an Eye on Accounts Receivables
The survival and performance of your company rely heavily on your accounts receivables. To keep the cash flowing in, you need to reach out to your clients to make sure they are making payments on time.
In order to be able to receive payments on time, you need a solid internal structure and establish an effective invoicing system. A good invoicing system will help you track, maintain, and receive regular notifications regarding pending payments.
Keeping a check on your accounts receivable will help business owners:
- Be sure that they are getting paid on time;
- Helps you plan ahead;
- Keep your cash flow stable; and
- Helps you operate your business smoothly.
Create a Budget for Meeting Goals & Objectives
Creating a budget is one of the primary steps. It involves generating projected revenue and expenditure. The budget will help you create a benchmark for what you need to work on.
According to a report from the Federal Reserve Banks of Chicago and San Francisco, over 60% of businesses with good financial health started by building a budget.
Small businesses that have a specific budget for accounting can:
- Allocate appropriate resources;
- Improve decision-making;
- Meet specific business objectives;
- Monitor performance; and
- Plan for the future.
Keep Separate Bank Account for Payroll
Adding payroll expenses to your regular account can create unnecessary confusion. Having a new bank account, you can keep the balance low, except for paydays.
The accountant will be able to easily tie the banking transactions with the payroll accounts. Payroll transactions involve EFT (electronic fund transfer), which offers a layer of security to other business finances and personal finances.
Keeping accounts payable and payroll accounts separate can help businesses:
- Easily track and control payroll transactions;
- Errors can be found out easily;
- In case of fraud, owners can close the account and start a new one;
- Limits the access to owner’s operating account number;
- Wage expenses mixed with other expenses can make tracking difficult.
Automate Accounting Process
Automating your bookkeeping and accounting process requires you to set up a workflow with the help of the right software and strategies. When you automate your accounting process, it becomes easier to stay consistent with accounting practices.
The steps to automate your accounting process are as follows:
- Identify your accounting process;
- Identify and get the right automation tool or software;
- Set up a workflow;
- Test your workflow; and
- Monitor the automated process and workflow.
Automating your accounting and bookkeeping system:
- Helps generate timely and accurate financial statements;
- Boosts operational efficiency;
- Helps reduce human errors;
- Help keep pace with generally accepted accounting principles; and
- Automatically generates estimated tax payments.
Keep Your Books Updated
Having well-organized books is a must for any business. It allows easy planning and financial forecasting for your business.
Well-organized books are essential for gaining valuable insights into your business. These insights and ideas are generated from actionable data from bookkeeping. The major reason for several businesses to perform poorly is the below-par maintenance of their book of accounts.
The several benefits of keeping your books up-to-date are:
- Helps you stick to your business budget;
- Helps you get a forecast of realistic financial projections;
- Avoid the stress and scrambling for accurate information during the season;
- Allows you to be prepared for emergencies;
- Avoid mistakes and errors; and
- It becomes easier to comply with the demands of the law.
Use Bookkeeping or Accounting Software
Technology has made things easier for business owners. If you are unable to hire an accountant, you can get your hands on robust cloud-based accounting software.
You don’t need to be tech-savvy to be able to use cloud-based accounting software. It has a shallow learning process and any contractor who wishes to handle the software on his own can do so easily.
Using accounting software can help in the following ways:
- Instantly generates financial reports;
- Reduces paperwork, saves time, and money;
- Simplifies payroll and provides accurate data;
- Accurate reports help in better decision making;
- Generate invoices quickly with a variety of templates; and
- Simplify tax compliance.
Create Profit and Loss Statements
The profit and loss statements depict the revenues and expenditures for a particular financial year. It is required to find the net result- whether the business is making a profit or incurring a loss. The profit and loss statement helps businesses answer vital questions about their efficiencies.
Profit and loss statements help small businesses in:
- Finding out the operational efficiency;
- Tallying cash flow statements
- Figure out tax payable;
- Helps you find out gross profit, net profit, operating profit, and profit before tax;
- Identifying and gaining control over indirect expenses;
- Helps track business performance; and
- Helps in planning for the future.
Expect High-cost Business Expenses
As a fully functioning business, you must take into account some of the major expenses you will incur throughout the financial year. Some of the major high-cost business expenses are:
- Equipment repair;
- Upgrade or replacement of machinery;
- Depreciation; and
- Tax preparation.
When you plan for these high-cost expenses:
- It helps you plan ahead for larger capital expenses;
- Becomes easy to take them into account when the time comes; and
- Get a quick turnaround time.
Always Get Receipts
Storing and maintaining receipts for all your expenses helps you know where you are spending your money. As a business owner, it is important that you track every major expense and have proof for the expenses you incur on a regular basis.
Getting and storing receipts for all your expenses help small business owners:
- Track every expense;
- Find out specific tax deductions;
- Categorize all the expenses accurately;
- Gauge how much they are spending on a regular basis and on what; and
- Helps as proof of delivery for developing clear financial records.
Avoid DIY Accounting
DIY accounting can be dangerous for the financial health and well-being of your business. In certain aspects of business, like accounting, it pays to outsource the functions and processes to a certified expert.
You do not want to waste all your time and energy on accounting when you have ten other things to focus on as a business owner.
Hiring a business accountant and avoiding the dangers of DIY accounting records can help a business owner:
- Reduce major accounting errors;
- Accounts will be up-to-date and in place;
- Get to know the areas for growth and cost-cutting;
- Avoid more work during tax season;
- Able to attend to more pressing matters; and
- Able to plan for the future.
Record & Track Every Business Expense
It is imperative to record and track expenses like consulting fees, direct labor costs, office supplies, travel, and utilities. Make sure you use dedicated business credit cards, record expenses, and digitize all your receipts.
Expenses are of various types:
- Interest; and
The recording and tracking of expenses can be useful in the following ways:
- It is really important for maintaining a healthy cash flow;
- It helps you figure out expenses that qualify for tax deductions;
- Helps gauge how well your business is doing;
- Helps gain insight into specific expenses and cash flow; and
- Helps categorize your expenses.
Hire Professionals for Tax Preparation
Professionals working on tax preparation keep up with all the changes and updates, thus it is easier for them to go through tax preparation than it will be for you.
Having a professional, knowledgeable resource will help you avoid risks and audits and do more good to your business rather than handling it on your own.
Hiring a professional for tax preparation will allow a business owner to:
- Save time and money;
- Get assistance for questions and issues relating to federal taxes;
- Avoid costly mistakes;
- Finding deductions easily; and
- Reduce the risk of audit.
How do small businesses do accounting?
The accounting method usually involves maintaining a cash flow statement, profit & loss statement (income statement), and balance sheet. While most small businesses maintain these bank statements of accounts manually these can be managed with the help of good accounting software as well.
How do I do simple bookkeeping for my small business?
To get started with simple bookkeeping for your small business, you can:
- Create separate business accounts;
- Maintain daily transactions (income and expenses);
- Keep tax deadlines in mind;
- Use bookkeeping software.
Does a business owner need to know to account?
A business owner must know the basics of accounting and bookkeeping because most major business decisions are influenced by the accounting of your business.
Why do small business owners need accountants?
Most small business owners need accountants so that bookkeeping, tracking expenses, and recording transactions can be automated without having to look into every detail. It allows a small business owner to focus on other pressing matters.
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Which Small Business Accounting Tips Will You Try First?
These small business accounting tips have been tried and tested by many business owners. It has helped them establish a better accounting system and manage business finances successfully with minimal errors. It has been proven that strong financial projections and financial statements influence the long-term success of any business.
Which tips are you going to try first? These tips will help you improve your chances of business success by being better at financial management.
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