When you’re running a small business, you need to know when you have to hire a bookkeeper or an accountant or else you’re going to lose money. Keeping track of your money through bookkeeping and accounting is vital to ensuring that your business stays on track, even in hard times. While it’s not the most glamorous part of owning a business, it’s nonetheless important.
Here are five tips for getting your financial organization started for your small business.
1. Start With a Bank Account
If you want to get work done in a professional context, you need to start off with a business bank account. This does several things for your small business, most importantly protects you from financial liability.
When you keep your business expenses separate from your personal expenses, you ensure that you’re not going to go bankrupt if your business does. Your personal expenses can’t impact your business expenses and vice versa if you want to keep either one afloat. If you fail to pay an invoice and you don’t have any way of protecting yourself, you’ll end up having the money taken out of your personal account.
When you start with a business checking account, you can pay for and receive payment for things under the terms that businesses follow. If you spend money on things that keep your business running, you can write them off as business expenses. If you were to pay for them with personal funds or on a personal credit card, you’d be stuck paying personal taxes.
This also helps to organize your money better. One of the most common problems that business owners face is they forget to pay themselves, which makes it harder to calculate funds altogether. While the business might stay afloat, the owner might be floundering.
2. Organize Your Expenses
Having a bookkeeper means that you’ll be able to keep track of your expenses. When you’re spending a lot of money to keep your business running, you can feel like you’re failing. If you think your business is doing well and you haven’t watched expenses, you could be hit with a surprise bill from the CRA or with problems staying open.
Before you make your first transaction, have a system for keeping your receipts organized. When you organize your records, you ensure that you’re going to process your taxes much more accurately.
Having a bookkeeper means that you don’t have to stress out trying to separate your different types of expenses. You need to separate meals and entertainment from travel expenses of office supplies. They all have their own separate rates of being taxed.
When you work from home, you can keep many of the potential overheads low, but you need to keep records accurately. If you fail to maintain those records, you could find yourself in a sticky situation with our friends in Ottawa.
If expenses are split between business and personal, you’ll have to calculate the portions accurately.
3. Set Up Your Payroll
When you’re opening up your own small business, you’re not going to be able to do it all on your own. It takes a village to run a business. You’re going to need at least some part-time or partial contract help from people around you. When you’re running the business on your own, it doesn’t mean you’re not going to pay for someone else.
There’s a distinct difference between employees, freelancers, and independent contractors. You’ll need to pay each one differently and be taxed separately for each. Your bookkeeper will be able to help keep things organized by having everyone sign the right forms and contracts.
You also need to come up with a payroll schedule that makes sense for you. IF you’re paying on a weekly basis, not only do you need to have the cash flow for such a system, but you also need to process things often. If you pay bi-weekly, you only have to process half as much but you’ll pay out more in each cheque.
Talk to a bookkeeper to ensure that they’ve set up a system for you to send out tax forms to everyone.
4. Pay Yourself
As stated above, many entrepreneurs forget to pay themselves. You need your bookkeeper to put a little bit of money aside to give you a paycheque. You can’t just draw money or resources out of your business or else you’ll be liable to go bankrupt.
If you’re without pay, you might end up sleeping on the floor of your business, which might also be illegal.
5. Calculate Your Margins
With the help of a professional, you will figure out how to earn more income day after day. If you want to calculate your margins, you need to know how much you’re spending to produce your products and services and how much you’re really making.
The cost of what you sell is a major factor in determining how much you could potentially make. If you’re just calculating your profits from what you make in sales, your numbers are going to be off.
Bookkeeping and Accounting is Vital
While bookkeeping and accounting aren’t the same things, they’re both important in keeping your business together. Every small business needs to be smart with their money if they want to thrive.
If you want to send sales soaring, check out our guide for improving sales with social media. And if you found value, then pound the share button!
Until the next time,