For example, you’ll use your personal tax return, Form 1040, to report business income and expenses on Schedule C if you’re a sole proprietor. While you’re at it, you’ll be able to identify trouble spots and make adjustments to improve your business. You can use an accounts receivable aging report for a quick view of outstanding customer payments. The beginning of the month is a good time to send overdue reminder statements to customers, clients, and anyone else who owes you money. Cash flow management is critical and includes forecasting how much cash you will need in the coming weeks and months. It will help you reserve enough money to pay bills, employees, and suppliers.
Document and file receipts
Using spreadsheet software is the cheapest accounting option (especially if you use a completely free software, like Google Sheets). Consulting part-time with a small-business bookkeeper or accountant can work nicely for newer, smaller businesses. But once your business is big enough that you can’t (or simply don’t want to) wrangle finances by yourself, it’s probably time to get a bookkeeper or CPA on your payroll. For example, if your vendors offer early payment discounts, schedule your payments early to take advantage of them. Otherwise, set payment reminders so you can pay your bills on time and avoid late fees. While daily invoicing may not be possible, invoicing clients weekly will foster prompt payments and strengthen your cash flow.
You already know this, but just to make sure it’s crystal clear, taxes are ridiculously complicated. Small-business taxes vary between industries, states, and business types, so to get the best advice on what taxes your business needs to pay, consult with your accountant. For the most part, though, you’ll probably end up paying income taxes, sales taxes, and payroll taxes. Once you’ve settled on an accounting method, it’s time to set up your books.
You can expect most bookkeepers to maintain the general ledger and accounts while the accountant is there to create and interpret more complex financial statements. Bookkeeping is what is a 12 month rolling forecast the process of tracking income and expenses in your business. It lets you know how you’re doing with cash flow and how your business is doing overall. Staying on top of your bookkeeping is important so that you don’t have unexpected realizations about account balances and expenses. Forbes Advisor has put together this guide to help you understand the basics of small business bookkeeping. At tax time, carefully review your company’s full-year financial reports before giving them to your accountant.
Do you need a business credit card?
- Unless you have a very small volume of transactions, it’s better to organize separate files for assorted receipts weekly or as they come in.
- If you select one accounting method and then decide that you’d like to change it after filing your taxes, you’d need to complete IRS Form 3115 to formally do so.
- Basic small business bookkeeping includes tracking your expenses, recording the transactions, and reconciling your business bank statements.
After recording transactions, you’ll want to keep copies of your invoices and all receipts. While tossing receipts in a box might seem tempting, it leads to chaos at tax time. Letting someone else handle your accounting means you have one less thing to worry about. Instead of crunching numbers, you’ll be free what is an average ledger to focus on other tasks that are necessary to run or scale your business. An accountant can also ensure greater accuracy and may be more knowledgeable about the tax code and reporting requirements. A small business can likely do all its own bookkeeping using accounting software.
Posting debits and credits to the correct accounts makes reporting more accurate. All you need is a simple statement showing your current cash position, expected upcoming cash receipts, and expected cash payments for this period. Businesses that operate with inventory need to stay on top of ordering on a regular basis to ensure products are in stock. Take the time each week to review your inventory counts and place orders the effects of accounts receivable on a balance sheet when levels are reaching a low point.
The deadline for sending these forms to employees and contractors is January 31. If you have to sell inventory for a deep discount, you could deduct it from your year-end taxes. Most invoices are due within 30 days, noted as “Net 30” at the bottom of your invoice. You might choose to work with a virtual bookkeeper if you’re comfortable connecting via Zoom or email. The fees may be lower, but be sure to ask about their background and experience before you sign a contract for their services. If you’re using tax filing software, you may have the option to organize and store receipts electronically.
Reconcile your business bank account
It’s important to have a system for creating and sending invoices to your clients. Plus, you must keep these invoices in your records using an invoice numbering system. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Some CPAs and bookkeepers require a retainer if you want monthly assistance, but many simply charge by the hour. Also, if you pay independent contractors $600 or more during the year, you’ll need to send each one a 1099-NEC form, as well as copies to the IRS.
Should you choose single-entry or double-entry bookkeeping?
It can be a good idea to use a business credit card, but don’t rely on it to make overdue payments or fund big purchases. Entering inventory into your system the same day you receive it keeps your system current, giving you a more accurate look at your stock. Without this level of inventory management, your staff may lose sales by telling customers you’re out of stock when an item just hasn’t been entered into the system. Also, if your staff sells out of an item, reordering may be delayed if your system isn’t set up to allow negative inventory counts. You’ll need to handle payroll withholdings and then report and deposit the payroll taxes, like Social Security, to the appropriate agencies on the required dates. A payroll service provider can do all this to save you time and ensure accuracy at a reasonable cost.