Top 20 Small Business Accounting Tips.

Myranda Mondry, Senior Content Creator at Intuit

Unless you’re an accountant or bookkeeper, you probably don’t look forward to digging into your transaction history or reviewing your income statements each week. Most small business owners don’t feel entirely confident when it comes to things like managing business finances or business accounting, and that’s okay! Managing your finances shouldn’t take away from the reason you started your business in the first place—to follow your dreams and fulfill your passions. 

Whether you enjoy it or not, managing your finances is part of running a business—a big part. Understanding your business finances helps you keep tabs on your profits, losses, and inventory. Generating and analyzing financial reports helps you keep a close eye on your cash flow, file your taxes correctly, and measure your business’s overall financial health. These numbers help you secure investors, make smarter business decisions, and discover new ways to grow your business. 

Business finances may not be the thing that gets you out of bed in the morning, but it’s an important part of your small business’s success. As your business grows, you might opt to hire an accountant or bookkeeper to take these financial tasks off your plate. But whether you’re taking a DIY approach or investing in the help of a professional, it’s important to understand these small business accounting tips to keep your business running. 

With that in mind, here are 20 small business accounting tips you should be doing to manage your business.

1. Start each day knowing how much cash you have.

80% of small business owners feel stressed because of their company’s cash flow, according to a recent QuickBooks report. Cash flow is the fuel to your business; you don’t want to run on empty. But here’s the thing: 44% of small business owners with cash flow problems said the problems were a total surprise. Start off each day by checking how much cash you have to avoid cash flow surprises down the road.

2. Research Small Business Tax Deductions.

Small business owners have the advantage of a long list of tax deductions that can significantly lower your tax bill. Tax deductions reduce the overall total income that is subject to federal and state-imposed taxation. There are dozens of tax deductions you may be eligible for--the real challenge is figuring out which ones.

Things like business meals, marketing costs, rent, travel expenses, and other business expenses can be written off or deducted come tax time. But every deduction has its own eligibility rules. For example, business meals for a company-wide party are 100% deductible, but business meals for the purpose of entertaining clients are not. A CPA or tax professional can ensure you’ve deducted expenses correctly before you submit your return.

To maximize tax deductions, you’ll want to itemize your deductions on your tax return. Itemizing takes a bit more time than taking the standard deduction, and, more importantly, requires meticulous record keeping on your end. But the payoff for small businesses is well worth the extra effort.

3. Understand Startup Cost Deductions.

Starting a business is exciting, but it’s also expensive. On top of recurring costs like rent, payroll, taxes, professional services, utilities, and marketing, starting a new business comes with a plethora of one-time startup costs like logo design, website design, down payments, permits, and licenses. Fortunately, many of these startup costs may be eligible for a tax deduction.

The IRS allows you to deduct $5,000 in business startup costs and $5,000 in organization costs, but only if your total startup costs are $50,000 or less. If your startup costs exceed $50,000 the amount of your allowable deduction will be reduced by the overage. If your startup costs exceed $55,000, the deduction is eliminated entirely.

To take advantage of this tax deduction, you’ll need to claim the startup deduction for the tax year that your business officially opened. If you missed it, you can file an amended return within six months of the return’s due date.

4. Track unpaid bills.

It’s not always possible to pay bills right away—many small businesses rely on cash inflows to cover unpaid bills. It’s important to keep track of unpaid bills so they don’t fall through the cracks. To avoid this, keep a record of each vendor including billing dates, amounts due, and payment due dates.

5. Make payments on time.

A late or forgotten payment can negatively affect your working relationship with your vendors and suppliers. Keep a close eye on your accounts payable and have funds earmarked to pay on time. Be sure to keep a copy of invoices sent and received to simplify tax time.    

6. Send invoices right away.

Over a quarter of small business owners say it takes 30 days or more to get paid for an invoice, according to a recent QuickBooks report. The majority agree that late payments cause problems with cash flow. Get paid faster by sending invoices right away, including a firm due date and clear payment terms.

7. Review projected cash flow each week.

Positive cash flow is the goal for all small business owners—it means you’re making more money than you’re spending. It sounds simple, but plenty of profitable businesses run into cash flow problems. Forecasting how much cash you’ll need in the coming weeks and months (to pay bills, employees, and suppliers) can help you reserve those funds and make more informed decisions about where your money goes. A statement of cash flows shows your current cash position, expected upcoming cash receipts, and expected cash payments.

8. Reconcile your books each month.

Understanding your small business’s financial health all hinges on having the correct numbers to work with. You need to know that your transaction entries are accurate. Reconciling your transactions each month makes it easier to discover and correct any errors or omissions—before those mistakes cause an expensive misunderstanding.

9. Review past-due invoices.

More than half of business owners (52%) say not getting paid on time is their biggest cash flow pain point, according to a recent QuickBooks report. For that reason, it's extremely important to keep a close eye on unpaid invoices and have a collections process in place to collect outstanding payments. It’s a good idea to include an “aging” column to separate open invoices by the number of days a bill is past due.

10. Analyze and adjust inventory.

If you manage inventory, you know how easy it is to get overloaded on products that move slowly or come up short on products that move fast. When you have a surplus of a product, you might resort to markdowns and write-offs to get the excess inventory out the door. But markdowns can significantly decrease your profit margins—hurting your bottom line. And failing to have enough of your popular sellers on hand can result in lost sales. Set aside time each month to identify the products that sell quickly and those that you can’t seem to move. These regular check-ins make it easier to make small adjustments so you never find yourself short or overloaded on certain items.

11. Meet payroll tax requirements.

If you manage employees, you also manage payroll, and you need to meet payroll tax requirements based on federal, state, and local laws. Be sure to withhold, report, and deposit applicable income tax, Social Security, and Medicare taxes to the appropriate agencies on the required dates. It can be a lot to keep track of, but a payroll service provider can help.

12. Measure your profit and loss statement against your budget.

A profit and loss statement (or income statement) tells you how much money your business has earned, and how much you’ve spent. About once a month you should measure your profit and loss statement against your monthly budget—comparing your actual numbers to your planned numbers can highlight areas where you might be spending too much.

13. Compare balance sheets.

A profit and loss statement (or income statement) tells you how much money your business has earned, and how much you’ve spent. About once a month you should measure your profit and loss statement against your monthly budget—comparing your actual numbers to your planned numbers can highlight areas where you might be spending too much.

14. Review quarterly payroll reports.

You’re likely processing payroll at least once a month—but you’re also required to report and submit some payroll taxes on a quarterly basis. The IRS and most states require quarterly payroll reporting and quarterly payroll tax payments. A payroll service provider can help complete these reports and file them with the IRS. Form 941 reports federal income tax withholdings and FICA taxes. Additionally, you need to withhold and submit quarterly state income tax using state tax forms.

15. Review sales tax and make payments.

All but five states in the US require sales tax. If your business operates in a state that requires sales tax, you’re responsible for charging, reporting, and paying sales tax on goods and services. Sales tax rates and regulations vary by state, so it’s important to research and understand your state’s specific sales tax rates. The Small Business Administration offers a breakdown of sales tax permit requirements by state, or you can check with your state’s department of revenue. Some states require businesses to report and pay sales tax each month; others operate on a quarterly or yearly payment schedule.
If you expect to owe more than $1,000 in taxes at the end of the year, you need to be making quarterly estimated tax payments. The IRS expects you to estimate how much you might owe in taxes and pay at least 90% of your total taxes due in four quarterly installments throughout the year. The IRS has free resources to help you calculate your quarterly estimated tax payments. And if you use a small business accounting tool like QuickBooks Self-Employed, your tax payments are estimated automatically.

17. Review inventory at year end.

As the end of the year approaches, take some time to review your current inventory and determine the value of items not sold. Any inventory deemed “worthless,” or items that cannot be sold, can be taken out of inventory. If you are no longer able to use the inventory in a normal manner or the inventory cannot be sold at its normal price, you can take a deduction on your tax return for “obsolete inventory.”

18. Send past-due invoices to collections.

As the end of the year approaches, take some time to review your current inventory and determine the value of items not sold. Any inventory deemed “worthless,” or items that cannot be sold, can be taken out of inventory. If you are no longer able to use the inventory in a normal manner or the inventory cannot be sold at its normal price, you can take a deduction on your tax return for “obsolete inventory.”

19. Fill out Form W-2 and 1099-MISC before January 31.

If you have employers or independent contractors, you have until January 31 to report their annual earnings on Form W-2 for employees and Form 1099-MISC for most independent contractors (a 1099 form is not required for contractors who earned less than $600). This deadline includes mailing copies of the tax forms to the people who worked for you.

20. Review full-year financial reports and tax returns.

Take some time at the end of the year to review your company’s full-year financial reports. Be sure to review your tax return for accuracy based on your financial reports before you submit it to the IRS. Remember, understanding these financial reports helps you understand your business’s financial health, make smarter financial decisions for your business, and find new opportunities to grow. These small business accounting tips can feel overwhelming to small business owners who got into business not to manage the books but to follow their dreams. If you’re feeling uncertain, a professional accountant or bookkeeper can help.
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