5 things to know about accounting when starting a small business

Most small businesses fail within the first four years they are open. My family started an ice cream and fast food shop, CK’s, that is currently in its fifth year of operation. Based on my experience within the company, my family has made a few mistakes when it comes to the accounting of the business. One of the mistakes my family had made was with the way they ordered the food and ice cream. At first, they did not pay attention to how much money they were spending on orders. They would just order whatever they needed. They soon realized that they cannot continue to order the way they were. Now they look at how much money they have to spend before even looking at ordering anything. While these minor mistakes have not set the company back in a drastic way, when it comes to accounting these mistakes usually do. In accounting the numbers must be accurate, if one number is off it will mess up the whole financial statement. I wish when my family started their business that they would have looked at how important the little things in accounting are. Listed below are just a couple small tips when starting a small business that can have a major impact on whether the business survives or fails.

1. Use a Checklist

 

Several things in accounting need to be done daily, weekly,monthly, quarterly, or annually. When you are first starting your business, keeping a checklist is a good way to remind yourself about these tasks and keep yourself on track. Checklists will help the company stay on track while closing out their accounts and fiscal year. Checklists are a key part to the success of accounting in a small business.

 

2. Accounting Software is Important

 

Accounting software is an important tool for small businesses to use especially during tax season. Many accountants say that when businesses give them the documents for their taxes, they are not very organized. The accountant then questions whether all the expenses and bank charges are there. When businesses use an accounting software, things are very organized and there are normally no questions whether things are there or not. My family uses Quick Books Online for our business. We use it because it’s an affordable software for smaller businesses, and it has all necessary accounting features for our business.Accounting software helps small businesses keep track of their accounts and keeps them accurate.

 

3. Bookkeeping is Essential

 

Bookkeeping tracks a business’s revenues and expenses. Not keeping track of the expenses and revenues can cause your business to incur severe penalties and fines. These penalties and fines can come from not paying an expense on time, or the information being incorrect on your taxes. When some businesses start to gain momentum, they lose track of their cash flow. Ultimately, that leads to them not actually knowing how much cash they have at a given time. For CK’s we use excel for bookkeeping. This is a generic way to keep track but it works. All we do is record all expenses and revenues as they come in, so we have a good idea of where we are at. A lot of employees we have hired, do not cash their checks right away. Therefore, we cannot just go by what we have in the bank. Even though they have not cashed the check yet, we still made that payment.Bookkeeping helps keep the finances of the company up to date and accurate.

 

4. Little Shortcuts can cause Big Mistakes

 

There are many shortcuts that small business owner scan make when it comes to accounting, but theses hortcuts often cause big mistakes for the company.  These mistakes could be avoided with simple actions that will keep the information more accurately. A business should keep all records of expenses and revenues. While it may seem unimportant to keep the receipts of transactions, it could save your business from being fined when it comes to taxes or audits. Avoiding shortcuts can save the small business
from creating massive mistakes in their accounts.

5. Always have a Plan

 

When starting a business, you should create a financial plan. Most small businesses fail within the first four years of operation but, by creating a financial plan you can decrease the businesses chances of failing. A financial plan can also help with the marketing decisions,getting financial support, and prioritize spending. The most important advantage about a financial plan is it will help you understand your cash flow. Small business owners often think revenue is the most important part of the financials however, the focus should be on profits and losses. Creating a plan for the business helps you understand the cash flow in the financial statements of the company.

 

Accounting is a key part in starting any small business, but by using the five tips listed above accounting can have a positive impact on your company’s success. These five tips for accounting to know when starting a small business are checklists, software, bookkeeping, planning and avoiding mistakes. Checklists keep you on schedule with the accounting period. Accounting software helps the business keep their numbers accurate. Bookkeeping tracks the businesses revenues and expenses over time. Avoiding shortcuts decreases the chances of making mistakes with accounting. Having a financial plan keeps the business focused on the profit and growth of the company. These tips will help any small business succeed in their accounting department.

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7 thoughts on “5 things to know about accounting when starting a small business

  1. Great article and very informative. I have owned a small home-based business and all of what you have said is true.

  2. This holds a lot of great information! I’m not an accounting major but it is still interesting to read about!

  3. I have taken a few accounting courses so I know just how confusing and hard it can be. But even though its difficult, it is an essential part to running a successful business!

  4. Great information on the topic of accounting. I took managerial and financial accounting, loved them both. Financial accounting is the way to go at least that is what I think especially with a small-business!

  5. As an accounting major I’m confident I can find a job in nearly any field because accounting is the one facet of business every company needs. Without accurate accounting information, the business will go under because they won’t be able to properly utilize revenues

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