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Accounting Tips for Small Business Owners

Oct 27, 2022

Every journey starts with a single step – and when you're a small business owner, the start of the journey may feel like a full-on sprint. Finances are some of your first significant considerations when you decide to start a small business. Typically, your best bet is to let an expert guide you through the process by hiring an accountant. 


However, as with hiring the rest of your staff, this process takes time. While hiring an accountant, or if you already have an accountant and want to help them, here are some accounting tips for small business owners.


Pick Structures

One of the first aspects of accounting you should consider when planning your business is which accounting structure your business will run on. The two main accounting structures are cash-based accounting and accrual-based accounting. Cash-based accounting is more straightforward because the company records the revenue when they receive payment. This structure works well for small businesses, particularly those in the professional services industry, where they may not have an inventory. 



For accrual-based accounting, the company records the revenue when it is earned, not when the payment is actually received. For instance, when the company delivers a service or ships merchandise, they record the income. The accrual-based structure may be a better choice for a company with inventory, stakeholders, and a slightly bigger size, as it also provides a snapshot of the company's financial health at any given moment.


Forecasting

If you're an avid watcher of the Weather Channel, you know that while the weather forecast is always subject to change, it can help you make plans. The same can be said for business forecasting. It may seem daunting to have a forecast when you are new to starting your business. However, answering a few questions about your goals will help you and your accountant along the way. 


You should consider what your annual sales will be, whether the company can break even each quarter, whether you have enough staff hired to meet sales demands, what changes your inventory needs, etc. You should also check your business forecast throughout the year to see if your numbers align with the forecast. 

Separate Business and Personal

In the first stages of your business, it can be tempting to start using personal accounts for financial transactions. Beyond what may be necessary, this is not a good strategy. You should set up a business bank account with an employer identification number as soon as possible. As any accountant will tell you, having a business bank account can offer you liability protections and make it easier to get tax deductions. You can also build up credit to cover cash gaps that your company may face.


Further, you benefit as an individual from keeping your business and personal separate since you won't have blurred lines between private investments and expenditures and your business finances. Another step to consider when separating business and personal is how much you will pay yourself when your business begins making money and you are paying your employees. Once again, when you hire an accountant, they can help you plan these considerations.


Protect Your Money and Data

Unfortunately, small businesses can be an easy target for many scams. On the digital side, many scammers send out malware via emails and email attachments, which falls under a phishing scam. Scammers are always coming up with the latest and greatest new techniques, so the best defense is to continually learn about these cyber-attacks and train your employees on how to avoid them. 


You should also use two-factor authentication whenever possible for financial accounts, social media accounts, etc. It is also imperative that for any financial transactions, multiple people need to look over and approve them. This is easier said than done if you don't have many employees, but it will help prevent mistakes and even internal employee fraud.

Choose Software and Automation

Finally, every business owner should choose software or an application that automates specific accounting or bookkeeping tasks. Even if you have an accountant or accounting team hired and they have software they plan to use, you should know about the system and talk through it with them. 


Luckily, there are many choices for software, and new capabilities are constantly being added. On the other hand, this can make choosing software overwhelming. With research, planning, and working with an accounting team, you can make the right choice for your business and get a running start on your finances.


Work with N.E.W.

Our team at N.E.W. Accounting is prepared to meet all of the considerations above and exceed your expectations. We know that small to medium-sized business owners can feel bogged down by their company's numbers, and we want to work with you so that you can focus on the rest of your business. Contact us today to get started!

Embracing Change: The Impact of Technology on Small Business Accounting

09 May, 2024
Technological advancements have revolutionized traditional accounting processes, from cloud-based software solutions to automation tools, offering efficiency, accuracy, and accessibility like never before. In this blog post, we'll explore the profound impact of technology on small business accounting, highlighting key trends and innovations shaping the industry. The Rise of Cloud-Based Accounting Software Gone are the days of cumbersome spreadsheets and desktop software installations. Cloud-based accounting software has emerged as a game-changer for small businesses, providing access to financial data anytime, anywhere. Platforms like QuickBooks Online, Xero, and FreshBooks offer real-time collaboration, automated updates, and seamless integration with other business tools, streamlining accounting workflows and enhancing productivity. Automation and AI-Powered Solutions Automation is another significant trend revolutionizing small business accounting. Tasks that were once manual and time-consuming, such as data entry, invoice processing, and reconciliation, can now be automated with the help of AI-powered software. Machine learning algorithms can categorize expenses, detect anomalies, and even generate financial reports, freeing up valuable time for accountants to focus on strategic analysis and advisory services.

Financial Lessons to Learn From Successful Small Businesses

13 Apr, 2024
When business owners and mentors give advice, they usually look at multi-million or billion-dollar companies and their leadership for business lessons. While the world's most successful conglomerates can teach us much, they're not the only places to draw inspiration. Successful small business owners can teach any organization tips for running and growing their business, which are often more tangible than those of large companies. What financial steps do well-run small businesses take? Let's look at some of the lessons we can learn from successful small businesses. Budgeting and Forecasting Budgeting and forecasting serve as the foundation of financial planning for small businesses. By creating a detailed budget and regularly updating financial forecasts, companies can gain insights into their cash flow, allocate resources efficiently, and anticipate future expenses. A well-thought-out budget enables businesses to set realistic financial goals and track their progress toward achieving them. Moreover, forecasting helps identify potential challenges and opportunities, allowing companies to adapt and strategize accordingly. Investing in Technology In today's digital age, investing in the right technology is crucial for small businesses to stay competitive and efficient. Whether it's accounting software, customer relationship management (CRM) systems, or marketing automation tools, technology can streamline operations, improve productivity, and reduce costs. By embracing technology, businesses can automate repetitive tasks, streamline workflows, and enhance customer experiences, ultimately driving growth and profitability. Cost Control Controlling costs is essential for maintaining profitability and sustainability. Small businesses should regularly evaluate their expenses and identify areas to achieve cost savings. This evaluation might involve negotiating better supplier contracts, optimizing inventory levels, or reducing unnecessary expenses. By implementing cost-control measures, businesses can improve their bottom line and strengthen their financial position in the long run.

A Small Business Owner's Guide to Payroll

07 Mar, 2024
Running a small business comes with challenges, and managing payroll is undoubtedly one of them. As a small business owner, you must understand payroll and the necessary steps to ensure your employees are paid accurately and on time. Whether you're just starting or looking to improve your payroll knowledge, let's explore the essential information you need to streamline your payroll process and keep your employees happy. The Importance of Payroll for Small Businesses Payroll is calculating and distributing employee wages, benefits, and deductions. It plays a crucial role in the smooth functioning of any business, regardless of its size. Here are some key reasons why payroll is vital for small businesses: Compliance with Employment Laws : Payroll ensures your business complies with local, state, and federal employment laws. By accurately calculating and withholding taxes, you avoid penalties and legal issues. Employee Satisfaction : Timely and accurate payment is essential for employee satisfaction. A reliable payroll system helps build trust and fosters a positive work environment. Financial Management : Payroll provides crucial financial information, such as labor costs and tax liabilities. This data helps you make informed budgeting, forecasting, and resource allocation decisions. Tax Obligations : Payroll and tax obligations are closely related. Accurately calculating and reporting payroll taxes ensures you meet your tax obligations and avoid costly penalties. Understanding Payroll Basics Before diving into payroll specifics, it's important to understand some key terms and concepts. Here are a few essential payroll basics: Employee Classification : Understanding the distinction between employees and independent contractors is crucial. Employees are subject to different tax and benefit regulations compared to independent contractors. Pay Periods : Pay periods determine how often you pay your employees. Standard pay periods include weekly, bi-weekly, semi-monthly, and monthly. Choose a pay period that aligns with your business's financial capabilities and employee expectations. Gross vs. Net Pay : Gross pay refers to an employee's total earnings before deductions. Conversely, net pay is the amount an employee takes home after deductions such as taxes, benefits, and retirement contributions. Deductions : Deductions are amounts subtracted from an employee's gross pay. These include federal and state taxes, Social Security and Medicare contributions, health insurance premiums, retirement contributions, and other authorized deductions. Calculating Employee Wages and Deductions Accurately calculating employee wages and deductions is crucial to ensure that your employees receive the correct pay and that you comply with tax regulations. Here are the critical steps involved in calculating employee wages: Determine the Pay Period : Start by determining the length of the pay period; this could be weekly, bi-weekly, semi-monthly, or monthly. Calculate Regular Wages : For hourly employees, multiply the hours worked by the hourly rate. For salaried employees, divide the annual salary by the number of pay periods in a year. Account for Overtime : If employees have worked overtime, calculate the overtime hours and apply the appropriate overtime rate. This rate is typically 1.5 times the regular hourly rate. Include Bonuses and Commissions : If applicable, factor in any bonuses or commissions earned during the pay period. Deduct Taxes and Other Withholdings : Calculate and deduct federal, state, and local taxes based on the employee's filing status and income. Also, deduct Social Security and Medicare contributions, health insurance premiums, retirement contributions, and other authorized deductions.
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