Taking control of your own business accounting process can give you peace of mind and alleviate the stress of someone else having access to your private financial information. As you’re planning to take your accounting in-house, here are some basic steps to ensure you’re on the right path.
Find what works for your business
The first step is to look for a program that works for your specific field and business style. Much like you would want to hire a lawyer or CPA who specializes in your specific industry, you want to choose an accounting program that caters to your needs. Some accounting software may include unnecessary features, such as tracking inventory; others may not have enough, such as a feature that calculates quarterly taxes.
Test out different software so you can pinpoint exactly what your business needs and ignore the rest. There’s no need to waste time on something that doesn’t work, and you’ll want to find the best fit as soon as possible.
DIY accounting requires a system
Since you’ve chosen to tackle your own small business accounting, you must set up—and stick to—a regular bookkeeping routine. Tasks like categorizing expenses, paying invoices, and preparing reports have to be completed on a daily and monthly basis. So it’s important to implement a system for checking these tasks off the list.
Otherwise it’s far too easy to get behind and find yourself in the midst of financial disorganization and needing to hire help to get through the mess. Having unorganized finances can also cause you to miss out on important tax deductions, making regular tax payments, and ultimately cause you to lose your hard-earned money to pay for late fees and a high tax bill.
Adhere to the basics
As long as you know the basics of small business accounting, everything else becomes relatively simple. Start by understanding these basic accounting terms, as these are things your CPA will require you to prepare and print off at the end of the year when filing your taxes.
• Accounts Receivable: Also known as AR, this account includes money you bill out to customers or vendors and are expecting payment for.
• Accounts Payable: Also known as AP, this account includes invoices and bills you receive and are required to pay.
• Assets: This account holds both tangible and intangible items you own that are of value to the business, such as equipment, property, tools, trademarks, patents, and stocks.
• Balance Sheet: This report is an overview of your company’s financial status and includes assets, liabilities, and equity in relation to the business.
• General Ledger: This report houses a complete recording of all the transactions, income, and expenses your business has incurred since its inception.
• Journal: A journal includes entries and accounts, sometimes called “journal entries,” and is where all your transactions are recorded, whether imported from your bank directly or added manually.
• Liabilities: This is the opposite of your assets and includes all long-term and short-term debt owed by the business.
• Profit and Loss Statement: Also known as P&L, this report lists all of the company’s gross earnings, expenses, and net profit.
Stick with the basics and you’ll be able to grasp nearly any accounting term or phrase that your CPA throws at you. This will help you save money by being able to expertly handle the bookkeeping tasks yourself.
Don’t forget to pay taxes
Above all things, it’s important to prioritize setting aside money for tax payments. This is the one thing that can really get your business into trouble, both with the IRS and by having cash flow issues, so don’t let this slip from your to-do list.
Depending on your type of small business, you’ll have to pay quarterly taxes and possibly have to submit payroll taxes and reports on behalf of any employees. Most accounting programs already have features built-in where you can quickly calculate quarterly or payroll taxes, and include specific guidelines for paying them. In this case, it may be best to prep the taxes and reports and then hand everything over to a CPA or tax professional.
When considering whether or not to take your accounting system in-house, these steps will make it easier for you to save money and time, while still producing your desired results.