When first starting your new business, it can be very easy to overlook arguably the most important aspect: The Accounting. Whilst you may be fantastic at your profession, you may be less enthusiastic about math, or working with at first glance, complicated tax returns and expenditure logs. Unfortunately, to successfully run a business you do have to begin the process of learning, or at least understanding what’s required to keep your business ticking over soundly in the financial department. Below, we’ve compiled the very basic steps you can take to begin learning what’s required in your business’ accounting. The most basic step of them all. Once your business is registered, you’ll need somewhere separated from your personal bank account to keep income that you accrue and for any LLC’s, partnerships or corporations, a separate account is legality. For other forms of businesses, a separate bank account keeps financial records clear and when it’s time to file your taxes, makes the process significantly easier. A business bank account also protects your personal assets in the worst case scenarios such as bankruptcy, lawsuits, or audits. Plus, if your business could be or is eligible for funding at any point in time, creditors and investors prefer separate, clear business accounts which can increase the likelihood of approvals. Bookkeeping and accounting are two different things. The process of bookkeeping differs from daily accounting because bookkeeping involves the day-to-day work of recording transactions, categorizing those transactions, as well as reconciling bank statements, recording, preparing and posting invoices and credit notes, reconciling supplier statements to supplier accounts, organizing payroll and much more. In comparison, accounting looks at business progress and builds financial statements out of the data collated by the bookkeeper. The management of bookkeeping is flexible and involves multiple methods. To manage your books you could: Whether you are a small limited company, or a sole-trader, whatever your business structure being registered for VAT is essential, even if you are below the current threshold. Currently registering for VAT is compulsory if your annual turnover or sales exceed the threshold however. VAT registration means charging customers the standard 20%. This amount is calculated using the date on which either the sales or purchase invoice was raised and is added to the sales invoice value, but kept aside from the amount your customers pay. The benefit is that you can reclaim VAT on any business-related purchases made and expenses incurred, regardless of whether your supplier invoices have been paid or not. The net amount of the two must be paid over to HMRC each quarter. Both bookkeeping and accounting can be confusing and overwhelming at the very start, and often for those with no financial background, these two aspects of a business can easily be pushed aside or procrastinated due to the complexity of each task. But if the information is not kept up to date, filed correctly, or filed on time, there can be financial penalties incurred depending on the nature of the mistake. Therefore it is vital that those who need the right support get it – in the form of either simplistic software such as Xero or Sage, or simply having an online virtual accounting partner accessible to you whenever, from wherever. Depending on your type of business, your tax obligations will vary. For those self-employed in either a sole proprietorship, LLC, LTD company or partnership, business income can be claimed on your personal tax return. On the other hand corporations are separate tax entities and will be taxed independently from their owners. Any income you make from the corporation is simply taxed as an employee. For American business owners, estimated quarterly taxes are compulsory if you owe more than $1,000 in taxes within a financial year. Across the border, Canadians are required to pay income tax in installments if the net tax owing is more than $3,000. These basic steps can give you and your business huge financial security in the long-run, and the bigger and better your business grows, the more you’ll get to grips with the various financial paperwork that seemed so daunting in the first place.1) Set Up a Business Bank Account
2) Choose a Bookkeeping System
3) Register for the Right VAT Scheme
4) Get the Right Accounting Software or Support
5) Take Care of Your Tax Obligations
The Basics of Small Business Accounting FAQs
The basic steps in small business accounting are setting up a business bank account, choosing a bookkeeping system, registering for the right VAT scheme, obtaining the correct accounting software or support, and ensuring you fulfill your tax obligations.
In small business accounting, setting up a separate bank account is critical to keep business transactions separate from personal ones. This simplifies record-keeping and tax filing, protects personal assets, and presents a more professional appearance to potential investors or creditors.
In small business accounting, bookkeeping involves the day-to-day recording of transactions, categorizing them, and reconciling bank statements. On the other hand, accounting focuses on assessing business progress and producing financial statements based on the data provided by the bookkeeper.
VAT registration is a crucial aspect of small business accounting, allowing businesses to charge customers the standard 20% VAT. Registered businesses can also reclaim VAT on business-related purchases and expenses, making it a valuable financial management tool.
Accounting software or support can significantly aid small business accounting by simplifying bookkeeping and accounting processes. These tools help ensure that information is up-to-date, correctly filed, and submitted on time, helping to prevent potential financial penalties.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.
