Accounting for Small Businesses: The Fundamentals

It’s easy to lose sight of what may be the most crucial part of running a business when you’re just getting started: the books. Even if you’re very good at what you do, numbers and figuring out tax returns and expense reports might not exactly excite you.

Unfortunately, if you want to be a successful business owner, you’ll need to start learning, or at least understanding, what it takes to keep your company’s finances running smoothly. Listed below are some of the most fundamental places to start learning about the accounting needs of your organization.

1) Open a corporate checking account

The first and foremost requirement. When operating as an LLC, partnership, or corporation, the law requires you to open a business bank account to hold the company’s funds apart from your own. A separate bank account is recommended for all other types of enterprises since it helps maintain organized financial records and makes tax time much less of a headache. Having a separate bank account for your company can safeguard your personal assets in the event of bankruptcy, legal action, or an audit. Separate, clean business accounts are preferred by creditors and investors and can boost the likelihood of approvals if your company is or may be eligible for funding.

2) Opt for a Record-Keeping Method

There is a distinction to be made between bookkeeping and accounting. Bookkeeping is distinct from accounting in that it entails the routine tasks of recording and classifying transactions, reconciling bank statements, recording, preparing, and posting invoices and credit notes, reconciling supplier statements to supplier accounts, organizing payroll, and so on. Accounting, on the other hand, analyzes the development of a company and creates financial statements based on the information gathered by the bookkeeper.

Accounting management is adaptable and multifaceted. You may keep your books in order by :

If you’d rather do it yourself, basic applications like Excel are available.

Use a virtual bookkeeper, either on a part-time or full-time basis, to take care of all your accounting needs.

When your company is big enough to warrant hiring someone full-time, whether physically or virtually.

3) Join the Appropriate Value-Added-Tax Scheme

No business entity, no matter how modest, can avoid VAT registration, no matter the threshold in place. This includes sole proprietorships and limited liability companies. However, as of right now, if your annual sales or turnover is above the threshold, you must register for VAT.

Having a VAT number allows you to charge the typical 20% more to your clients. This figure is added to the sales invoice value, but not included in the total your customers pay, and is determined using the date of either the sales or buy invoice. In this way, you can get back the value-added tax you paid on business-related purchases and expenses even if you haven’t yet paid your suppliers. Each quarter, you must hand over to HMRC the sum of these two amounts.

4) Invest in Reliable Accounting Technology and Help

Bookkeeping and accounting are two parts of a business that can be particularly daunting to people without a financial experience, leading many to put them off or put them off until later. However, depending on the type of error, monetary fines may be applied for failing to maintain accurate records or file them by the required date. Thus, it is crucial that individuals who require the appropriate assistance have it, whether in the shape of user-friendly software like Xero or Sage, or just having an online virtual accounting partner available to you whenever, wherever.

Five, pay your taxes on time

Your tax responsibilities will change based on the kind of your company. Profits from a sole proprietorship, an LLC, a Limited Liability Company, or a Partnership can be deducted off a personal tax return. However, corporations are treated as distinct tax entities from their owners and are subject to their own set of tax rules. You will file your corporate income tax return under the “Wages and Salaries” category.

The three main types of taxation in the UK are: Every limited company in the United Kingdom is required by law to file a Corporation Tax return and pay any tax owed to HMRC no later than nine months and one day after the close of its accounting period. Analyzing Oneself Personal income tax is determined for the 12-month period beginning on the sixth of April and ending on the fifth of April; any tax due for this time is due on the thirty-first of January following the year in which it was earned. Finally, there are four income-tax brackets to choose from. Those with annual incomes of less than £12,500 are exempt from paying income tax.

Meanwhile, business owners in the US are required to make quarterly tax payments if they anticipate owing more than $1,000 in taxes for the fiscal year. If a Canadian taxpayer owes more than $3,000 in income tax, they must make payments over the course of several years.

These simple actions can provide you and your organization with significant long-term financial security, and as your firm expands and improves, you will become more comfortable with the numerous financial papers that initially looked so frightening.