You know you have a unique — and seriously profitable — idea for a successful startup.
You’ve even created an awesome branding strategy, and feel like you know exactly who your target market is.
However, you’re concerned that your lack of knowledge and experience when it comes to financials and budgeting could bring you trouble down the line.
You want to learn how to do small business accounting the right way, but you don’t know where to start.
In this post, we’ll tell you all about the most important accounting basics and what it takes to get them right.
Read on to ensure that your startup gets off on the right financial footing.
1. Determine Fixed Monthly Expenses
The first step in mastering accounting 101?
Make sure that you have an understanding of what it costs to keep your business open every month.
The best way to do this is to make a list of all of your fixed monthly expenses. These include things like employee payroll, keeping your inventory in stock, payments back on any loans you’ve taken out, and even the cost of your equipment.
The same goes for rent on your office building, the cost of office supplies, and even an emergency fund for all of those unexpected expenses.
Then, consider the variable costs of running your business that are a bit less difficult to calculate.
These can be things like potentially late invoices from customers, your monthly profits, any freelancer/contractor services you need to hire, expense accounts, and more.
Getting as accurate of a picture of your small business accounting situation as is possible will set the stage for handling all of your finances correctly.
2. Start Preparing for Tax Season Now
There’s no time like the present to start seriously thinking about your taxes.
The good news is that you’re entitled to tax breaks and other write-offs as a small business owner. Work with a tax professional (more on that later) to ensure that you’re aware of all the opportunities you have to save.
You should also take this time to study up on any import taxes you may need to pay. The same goes for your sales taxes, whether or not you’re still considering yourself to be self-employed, and much more.
Always set aside a percentage of your earnings to cover taxes.
3. Consider Your Funding Options
You’ll need to understand how you’re going to get the money to bring your business to life.
You have several different options when it comes to raising capital.
Perhaps meeting with an angel investor or a group of investors who will give you funding in exchange for equity is your best bet. Think about when you’ll be able to give them a profit and try to stick to that timeline.
Maybe you’d prefer to raise the money you need through crowdfunding. If so, consider the costs of the “rewards” you’ll send out to those who have invested in your business.
Perhaps you even want to take out some sort of a small business loan in order to finance your company. What will the interest rates, monthly payments, and fees associated with the loan be?
You could even consider opening up a franchise to save on opening costs (check it out here to learn more about the benefits of doing so).
4. When in Doubt, Work with a Pro
Feel like you’re struggling to grasp the most important accounting basics?
Having trouble setting up a payroll system that works for you?
Just feel like you’re not able to accurately calculate your operating expenses, your working capital, and other important financial figures?
Admitting what you don’t know is a hugely important part of doing business accounting successfully. Especially if your business is growing at a faster rate than you originally anticipated, you may want to consider working with a professional small business bookkeeping business.
First of all, contracting a bookkeeper saves you the salary and benefits of hiring a full-time employee. They’ll also let you know about other ways you can lower your operating expenses.
Above all, they’ll ensure that the numbers you’re working with are actually accurate.
Check out this list of tips to help you understand some of the most important things to look for when you’re hiring a professional bookkeeper.
5. Avoid Co-Mingling
One final thing you need to keep in mind when developing a small business accounting plan?
Never mix your personal bank accounts and your business ones. Always open up a separate account for your company.
First of all, doing so makes it much easier for you to more accurately understand your expenses and profits. But additionally, you could run into some serious trouble when tax season comes around if you decide to mix the two accounts.
It’s not just about avoiding confusion. In some cases, it could land you in some serious legal trouble down the line — especially as your business grows and becomes more profitable.
Master These Accounting Basics to Get Your Startup Going
We hope that this post has helped you to understand the most essential accounting basics that you need to get serious about in order to have a successful startup.
Remember to prepare for taxes early, avoid mixing personal and business accounts, and hire a professional whenever you have questions.
Of course, you also want to continue to educate yourself about the best ways you can keep your finances in good working order.
We can help you with that.
From helping you to create a cost-effective marketing strategy to learning which loans are right for you, keep checking back with us to get startup financing and budgeting right.