Beginner’s guide to business accounting
Tips on how to do simple small business accounting
To run a small business, you have to be at least a little skilled in the art of business accounting. Small business accounting entails a lot of moving parts such as recording financial transactions, creating financial reports, filing tax returns. If you get your accounting right, you can know the health and worth of your company which will inform whatever decisions you make on short or long-term success.
What is small business accounting?
Small business accounting is the process of tracking, recording, and analysing the financial transactions of your business. Doing this helps you translate the myriad of numbers in your books into an understandable statement that provides insight into the profitability of your business. While accounting is not one of the fun parts of running a business, it is definitely an important and necessary part as it helps avoid cash flow issues and unnecessary paperwork.
Basic accounting plans for your business
Open a corporate account
The first step is to open a corporate account for your business. This will help you monitor all transactions going in and coming out of your account. This is also beneficial when it comes to collecting business credit.
Identify your method for accounting
There are currently two methods for accounting- cash or accrual basis. With cash-basis accounting, income and expenses are recorded when cash is paid or received. With accrual accounting, you use the double-entry method of recording transactions, which means two entries are made for each transaction. Expenses and income are recorded when they are incurred or earned, whether or not cash is exchanged.
Develop a bookkeeping system
Learn how to track and record business transactions. Bookkeeping entails a daily process of recording and categorising transactions and reconciling bank statements. With a good bookkeeping system, you get to monitor your deductible expenses such as tax deductions, prepare financial statements, and tax documents and track the growth of your business. As a small business owner you might decide to handle your book keeping by:
- Using cloud-based small business accounting software, which automates these steps and makes the balancing of books much easier eg SageBusiness Cloud, Freshbooks, Quickbooks, Brass etc.
- Outsource to a bookkeeping or accounting consultant.
- Hire a bookkeeper or an accountant.
Set up an invoicing system
Set up an invoicing system that works. An invoice is prepared when you have products or services that need to be sold. If you are a Brass account holder, you have the ability to create, send and reconcile invoices sent to your customers online. An invoice helps you keep track of products/services sold and payments coming in to your account.
Generate financial statements
You can generate different types of financial statements that reflect the state of your business. These include the income statement, statement of cash flow, statement of retained earnings, and the balance sheet.
Quick tip: Keep all receipts of sales and purchases. Receipts make it easier to have all the information required to create summaries of transactions in your books.
Re-evaluate your accounting methods
As your business grows, your income and expenses are more than likely to grow with it. The current book keeping methods you use might need to change over the years. Take time to fine-tune your methods. Good and efficient bookkeeping helps you see a pattern and make the necessary changes in the way that you’ve been operating.
While it may look very difficult at first, keeping books for your business is very simple once you focus on keeping track of your expenses and collecting all financial information required for a tax filing.
Key Takeaways
In order to excel at business accounting and bookkeeping, make sure to use the following tips:
- Open a corporate account
- Identify your method for accounting
- Develop a bookkeeping system
- Set up an invoicing system
- Generate financial statements
- Re-evaluate your accounting methods
Alternatively, you can use the following accounting software used by companies in Nigeria:
