Every time you have to sit down and look at your books, it's a little stressful; luckily, we have some tips for you to make it easier on your mind and your business.
Having a good grasp on your accounting and bookkeeping gives you a better chance at success and increased revenue over the years. So, we are here to help you build some great habits that will keep you on the straight and narrow to success for years to come!
Hire an Accountant and Bookkeeper
There are no two ways about this, and it's so much cheaper for you to have a professional keep your books than for you to try to keep them. Even if you have a friend or family member in charge of your books, if they aren't intimately familiar with the ins and outs of accounting, you are probably losing money through errors, time spent, or mishandled books.
By hiring a professional accountant and bookkeeper, you get the expertise of a professional who won't waste your time or money and will keep your books squared away for years. This will free you up to run your business, and that peace of mind is immense!
Decide How to Report Income and Expenses
Do you want to use accrual accounting or cash-based accounting?
Obviously, talk to your accountant about this one, but here's something for your mind to work on before you do.
What is Accrual Accounting?
Accrual accounting requires businesses to report income when revenue is earned, not when cash is received. Also, expenses are recorded when they are incurred, not when they are paid.
This limits business owners' flexibility to the period where income and expenses are reported.
When to Use Accrual Accounting
When your business:
One that carries inventory
Is larger
Has complex structures
Has shareholders or investors
What is Cash Accounting?
Cash accounting is when businesses report revenue when cash is received and reports expenses when they are actually paid. This allows for more flexible planning and reporting practices.
When to Use Cash Accounting
When your business:
It doesn't carry inventory
Is smaller
Sells services, not products
Pay Yourself a Salary
Many small business owners avoid taking a salary because they believe it will help their business to succeed, but you should be adequately paid. If you own a small business and never take a salary, how sustainable is the business?
Paying yourself a regular and repeatable salary allows you to keep the business and home life balance. Isn't that why you started your business to begin with?
Even if the salary isn't enough to sustain you fully, make it regular and somewhat sustainable.
It’s important to note that how you pay yourself depends on how your business is setup.
If your business is an S Corp or C Corp, a salary is an acceptable form of self-payment as long as it’s made through payroll.
If your business is an LLC then draws are the way to go.
Get Bookkeeping Software
No matter if you are keeping your own books or paying someone else to do it, invest in good bookkeeping software! This can simplify things tremendously by not requiring you to do a bunch of work that's already been done. Bookkeeping software today is so much more impressive than it was even ten years ago; you won't regret this investment.
