Tax season is coming and that means small business owners are scrambling to get their business accounts organized.
The problem is that many entrepreneurs don’t feel like they have time for accounting through the rest of the year. The ledgers pile up and make the first few months of the year a nightmare of debits and credits.
They end up putting it off for so long that an accountant is hired last minute just to get the company’s taxes filed on time. It costs a lot of money and creates the impression that the business owner can’t handle their own accounting.
Accounting, like a lot of things for your business is best managed in small steps. Trying to figure out a CPA’s level of understanding in a week will only leave you confused and frustrated. Take a more gradual approach and you’ll find it’s not so intimidating after all.
Here are three tips for small business accounting success to get you started.
Create a Small Business Budget
One of the biggest small business myths is that have to be an accountant to know what you’re doing. You don’t have to be an accountant but you do need to understand how business finances differ from personal finances.
A business budget is going to differ from the one you make for your family. Where your family budget will probably start with how much you make and then deduct expenses, your business budget is just the opposite.
For your business, you need to start with the fixed costs you have to pay. This makes it easier to understand how much in sales you need to cover fixed costs plus those that vary with operations. Don’t forget to budget in an amount to reinvest in your success.
Learn How to Invoice Clients for Faster Payment
Nearly half (40%) of invoices to small businesses are paid late. Besides throwing your budget out of whack it’s also a huge source of stress for the business owner.
The problem is that most small business owners don’t have much leverage against buyers that don’t pay on time. You need the customer and sometimes can’t afford to turn someone away even if they chronically pay late.
For most business owners, the only tool is to include some form of punishment to late payment, a charge or interest fee after 30-days. Get creative with your invoicing with these ideas:
- Set earlier payment terms for new customers
- Offer a discount for early or on-time payments
- Offer a discount for multiple on-time payments
Be flexible on negotiating payment terms up front but don’t budge on the terms once they’ve been set.
Know When to Hire an Accountant
Good payroll accounting software can go a long way to getting your books in order. Most will automatically integrate invoicing, sales, expenses and other items to make the whole process just a few clicks.
Sometimes it just makes sense to bring in professional help.
I usually recommend new business owners to get a professional accountant for their first year’s tax preparation. I’m not talking about hiring one of the accounting mills that pop up around tax time but someone that works year-round as a small business accountant. Book them early to avoid the April rush and then watch every step they make. Ask lots of questions and use the experience as a crash course on taxes. You won’t learn everything but you’ll pick up a lot of pointers and some valuable deductions you might have missed otherwise.
You may also want to get someone on retainer or even a part-time accountant when you’ve grown beyond do-it-yourself. Understand that your time is worth money. When your business starts growing and demanding more of your time, that time becomes more valuable and there’s a point where it’s just smarter to start delegating tasks.
Doing your own small business accounting doesn’t have to be scary and it doesn’t have to be something that breaks your business budget. Put a couple of beginner accounting books on your reading list and consider taking a short night-course to get started. It won’t take long and other small business owners will be asking for advice.