Step-by-Step Guide for Small Business Accounting in 2024
Running a small business involves taking care of multiple aspects, such as maintaining the inventory, improving the overall service in accordance with the feedback of your customers, and looking after the financial health of your business. You may need to spend a whole day just to clear the payables of your small business. And ignoring the small business accounting in 2024 is not an option, as your financials of the business entirely depend on it. You could also hire a CPA for small business, who not only will save time and money but will also put your business on the right track.
We’ll explore the basics of getting you started with the accounting for your small business, but first, let’s uncover what exactly is small business accounting.
What is Small Business Accounting?
In layman’s terms, small business accounting means keeping a consistently updated record of the cash flow. But in reality, small business accounting involves doing way more than just recording cash flow. Here is a list of what you or your CPA might be doing to manage the financials of your business:
- Keeping track of both payables and receivables to see if your customers are actually paying on time
- Bookkeeping
- Logging cash flow
- Filing for tax returns
- Maintaining financial reports
Overseeing this amount of financial work will surely be a time-consuming job for you as a small business owner. This is why we recommend hiring a CPA for small business so you can focus on what matters the most, that is running your business.
Steps for Doing Small Business Accounting in 2024
If you’re just starting up your small business and you have no prior experience of running a business, you should familiarize yourself with the necessary steps of how to do small business accounting before you hand over the financials of your business to a CPA in 2024. We have put together a list of practical steps you can take to kickstart logging the financial records of your business.
Step 1 – Open a Separate Business Bank Account
You should open a business bank account that is separate from your personal bank account as soon as you have established your business. Opening a business bank account should make managing and storing the capital quite easy, that is needed for your small business, as your personal finances will not overlap with the ones related to your business.
Another benefit of opening a separate business bank account is connected with business taxation. You might need to pay more taxes if your business relies on the financial transactions that are made through your personal bank account. However, your business might be entitled to tax relaxation and deductions that a CPA can hunt for and take advantage of if you have opted for a dedicated business bank account.
Step 2 – Select a Bookkeeping Method
Once you have opened a business bank account for your business, the next step is to record the transactions that are made within your business so you are not left scratching your head at the end of the financial month of your business. You can choose between single-entry bookkeeping and double-entry bookkeeping. Let’s make this selection easier for you as we explain which bookkeeping method will work best for your business.
- Single-Entry Bookkeeping: Single-entry bookkeeping is based upon cash basis accounting method. As is obvious from its name, you’ll only record one single business transaction that you either send or receive in cash. This bookkeeping method will work best if your business is just starting up; you send and receive payments directly in cash, and your business doesn’t require dealing with inventory.
- Double-Entry Bookkeeping: This method of bookkeeping is based upon accrual accounting. Your CPA will log two entries for the same transaction, one when the amount is debited and another when that amount is credited. This method of bookkeeping works best when your business deals with keeping inventory and you intend to grow your business. Consider outsourcing bookkeeping for your small business or startup.
Step 3 – Log the Expenses
In the early days of your business, make sure to log each and every bit of the expenses, as you are most certainly starting with the little and you don’t want to let it go unnoticed. Here is a list of what may count as an expense:
- Payroll for the employees
- The rent of the building your business operates in
- Traveling out of your town for the sake of either getting new supplies or for something else
- Purchase of inventory
- Fee for the transportation of inventory
Apart from logging, you should also keep that logged record of expenses organized in a file or drawer (without adding anything else that isn’t related to your small business accounting in 2024). Also include all the receipts regarding the purchases made through your business.
Step 4 – Decide How You want to Receive Payments
You can receive payments from your business clients either offline or online. Both ways have their own set of pros and cons, both for you, the business owner, and the customer. Offline payment is beneficial for you as you won’t have to deal with the payment fees of online payment gateways, and you’ll receive money without any delays. Though the customer will have no other option than to pay for the product or service on the spot.
Online payment methods mainly consist of payment gateways that process the transfer of money through the internet. Popular online payment providers are PayPal, Stripe, eWallets, and credit and debit card companies. Online payment methods are convenient for customers, as they can not only get their desired products or services online but also pay later if they are short on cash. But for you, the business owner, you may have to wait for the amount to be credited (if your customer decides to use a credit card). The online payments will also be subject to a hefty 3% fee from the merchants.
Though you’ll be reaping the benefits of your business reaching beyond its geographical boundaries, the trend for online payment is also on the rise. 34% of the payments are made with credit cards.
Final Analysis
Properly managing the financial aspects of a small business is important for its success. While overseeing accounting tasks does get time-consuming for small business owners like you, hiring a CPA for small business will enable you to focus on core business operations. Following the initial steps, such as opening a separate business bank account, selecting a bookkeeping method, logging expenses, and deciding on payment options, will provide a strong financial foundation for your business to grow and prosper. I hope your financial management will improve with our guide to small business accounting in 2024.
Disclaimer: This article does not constitute tax advice. Please consult Ahmed Baqir, CPA at Epsilon Accounting Solutions PLLC, before making any tax-related decisions or taking any actions based on the information provided in this article. Ahmed Baqir, CPA, has the expertise and knowledge to provide personalized advice tailored to your specific financial situation and goals.
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Sources and Suggested Readings
- https://www.deskera.com/blog/small-business-accounting/
- https://www.sage.com/en-gb/blog/the-ultimate-guide-to-basic-business-accounting/
- https://www.coursera.org/articles/small-business-accounting
