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Accounting Basics for Small Businesses


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Article written by Rose Julianne



One constant aspect of business is accounting, yet many small business owners don’t consider every aspect of this when launching or managing their operations. The US Chamber of Commerce revealed that the number one reason small businesses fail is cash flow problems. Poor budgeting, lack of funding, and inventory management problems are responsible for 82% of small business failures. 




Studying Revenue

Your revenue is the amount of money you bring in without considering any costs or expenses that must be deducted. It's important to study your revenue to get a good idea of what’s working and what adjustments need to be made. The simplest way to calculate your revenue over a specific period is to multiply your number of sales or transactions by the price of the product or service. Despite the seemingly simple method, this is still prone to errors and can be very time-consuming. 


Around 27% of accounting mistakes come from incorrect data entries, with typos, duplicates, and oversights being the usual suspects. This is why SOFTRAX provides automated revenue recognition solutions to minimize errors and stay up to date with compliance. When you use a tool like this, you can be more strategic with your analysis because you have a streamlined and automated system that provides greater visibility and eliminates the need for spreadsheets. This is achieved through cloud-based tech that integrates into your back office and works with any existing ERP, CRM, and CPQ systems. So, instead of completely replacing your current system, you update it and have more robust and error-free revenue management in place. 



Analyzing Financial Transactions 

Good accounting is not just about what’s coming in. It also involves tracking how much is going out and considering how this translates to profit versus cost. Everything needs to have a source document because this gives you a paper trail to rely on when calculating everything. In terms of analysis, it also means learning what constitutes a business expense and what avenues require more stringent guidelines. 


Any changes, adjustments, and balances should be recorded and analyzed for future planning. For example, the Jasleni Brito branding guide pins down the importance of putting time and money into branding to connect to consumers, set yourself apart from competitors, and hone the service or product that caters to your target market. This trial-and-error process can involve a lot of costs, but experts note that this is not actually considered a business expense. Instead, it’s an investment and may be considered a capital asset. Knowing these minute but pivotal differences can impact your analysis and financial tracking accuracy.


Picking the Right Accounting Method

Two basic accounting methods are recognized by the Internal Revenue Service (IRS): cash and accrual. Once you select one, you must stick with it because you would otherwise need to file Form 3115 to formally shift your accounting method after filing taxes. 


The cash method primarily considers revenue and expenses when money has changed hands. So, you report your income when you receive it and then deduct the expenses in the year they are paid. On the other hand, the accrual method (as its name implies) sees businesses reporting their income in the year it is considered earned, regardless of the time of receipt. It also recognizes expenses when billed, irrespective of when they are paid.  



Meeting Compliance

Finally, your record-keeping must always comply with tax standards. The US Small Business Administration notes that “most businesses choose their tax year to be the same as the calendar year.” However, you can always change this later by filing with the IRS. Fiscal tax years can also be chosen if you don’t want your accounting cycle to end in December. 


RMS and other tools help to keep you in compliance, but it’s good to have a working knowledge of updated guidelines every year. Each state has its regulations when determining your state tax obligations. Check if your local government has tools to simplify business tax calculations. For instance, Los Angeles provides an online tax calculator that allows users to input their business categories and gross receipts. It also comes with extra resources regarding contractors, special circumstances, and exemptions. 



With the right tools and resources, you should have a better grasp of accounting businesses to keep your small business alive even during economically challenged eras. 




 

Contact Jasleni for more info about how you can transform your business and your life through Business Witchcraft & Coaching or with a custom Logo & Brand Vision!



 


1 Comment


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