A Key Guide to Business Accounting

Good business accounting practice is key to a successful business, allowing company owners to make good decisions based on financial data that is accurately recorded.

Business owners need to use business accounting to be able to plan operations and devise strategies that actively encourage growth. That comes from an accurate understanding of what business accounting is and how to perform it for the best results.

In essence, business accounting is the whole process of identifying where money is coming from and where it is going. The process also involves keeping complete, accurate, and timely records of financial information that is measurable. All these functions can be completed by a bookkeeper or by using cloud-based software that can make it easy to make checks while accounting. An accountant can then ensure all records are accurate and ready for tax season and help with interpreting the performance of the business to make recommendations for further growth, future performance, and better profits.

By monitoring the profit and loss of the company accurately, knowing and managing the cash flow, and understanding the value of assets and liabilities as well as any held equity, small business owners can have a good understanding of where they can make more money, where they need to cut back, and what is working in terms of staying healthily in the black.

Steps to Take for Business Accounting

There are certain steps that you need to take in order to complete your business accounting properly. While some sole traders might not have the ability to complete all these steps straight away, it is a good idea to get them in place before you need them. You then get off on the right foot when it comes to your finances.

1. Business Bank Account

According to the IRS, sole traders do not have to have business bank accounts, but any incorporated business has to have one.

It is a good idea to set up a business bank account anyway. It makes your business more legitimate and professional-looking to potential customers. Moreover, it allows you to do things like apply for a business loan should you need one.

A business bank account is quite simple to set up. Moreover, it makes all the difference when it comes to monitoring exactly what cash the business is using.

2. Find an Accountant

The bookkeeping services provided by an accountant such as SFT Tax Services, will not only get your company’s finances into optimal condition, but they’ll prove to be an invaluable source of knowledge and assistance if any financial issues should occur.

While this might seem like a rather extravagant expense when you are just getting started, getting a good accountant or someone who is well-versed in tax laws to understand your business straight away will save much time and effort in the long run.

Even if you are not going to be using an accountant for your regular bookkeeping and accounts management, you will need one at certain periods of the financial year to help with the IRS.

3. Introduce a System

This is an important step ― even if you are currently the only person working in your business. Create a workflow and a policy related to the accounting system that you are using, whether that is a basic spreadsheet or the more useful cloud accounting software.

This accounting system should include:

• Invoicing requirements;
• Receipt management;
• Payment allocations;
• Expenses;
• Check management; and
• Tax calculations.

If you already have employees, then ensure that certain privileged staff members have authorization to perform tasks such as making payments to suppliers or writing checks. This helps prevent fraud and ensures that all the financial records are being kept properly.

Accurately record every single cent of money that comes into the business or leaves it. Whether done entirely by you as a sole trader, by a bookkeeper, or by several different members of staff, keeping the accounting software up to date is a priority for all.

Make Better Decisions

As a business owner, you want your business to be a success and grow — whether it is a one-person company creating items to sell online or a multinational conglomerate seeking to move into a new area. The only ways to make this happen are to fully understand the financial health of your business and to use good business accounting practices.