Basics of Small Business Accounting
by Priyankar Baid
Accounting is a key function of any business-big or small. Good accounting practices are necessary to maintain an accurate set of books which in turn are necessary for taking business decisions, raising capital or bank loans and of-course for knowing how much money your business is making!.
Getting the accounting right for small businesses is all about doing simple accounting things well every time. These practices can be easily implemented by most business owners. Some of the key things are:
a. Keep all business and personal transactions separate. Use a business card if possible, to segregate business transactions.
b. All sales are deposited and that all expenses are recorded in the business checking account or on a business credit card.
c. Book even cash-receipts from customers. Ideally store all the cash in a drawer and reconcile the account at-least once a month (if not weekly)
d. Track personal funds used to pay company expenses or vice-versa through one account. Track reimbursements to owners also through this account. This helps in clearly identifying what money has been spent by you on business transactions
e. Reconcile all bank and credit card accounts-monthly. This is a highly recommended practice as its benefits go beyond just good accounting. When your bookkeeper/you reconcile books, you get a clear picture of how funds move in-and-out of your bank account.
f. As far as possible, track all bills under a proper expense account. Always right the nature of the expense in memo.
g. Clear tracking of expenses can save a lot of money in taxes as many expenses may be deductible. Your tax-preparer or CPA will not be able get you those benefits if can't see them booked in right accounts or atleast with enough detail in memo.
h. Simplicity of small business software like QuickBooks has made many small business owners to do their accounting themselves. This is not a good idea as without the basic accounting knowledge, it's easy to make errors like treating a liability as an expense. For e.g. I see many small business owners books loan repayments as a expense without separating the principal and interest components
Accounting for small business is not rocket science; it's about being systematic and detailed. The starting point is to set in good accounting practices. These are best done by using a professional accountant or bookkeeper. Today, small businesses can access qualified and efficient accounting talent not available locally. Your accountant no longer needs to be present in your office or physically meet you. He/She can be in another part of the country or even outside the country!!
About the Author
Priyankar Baid is an experienced accountant who has consulted small businesses in US, Cananda and UK over the last few years. He also runs a firm (outsourcinghubindia.com) specializing in online accounting. He helps businesses set-up accounting systems, clean-up existing books and implement outsourcing agreements. His firm specializes in providing accounting and reporting services to small medium businesses in North America.
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