As a small business owner, it is important to have a basic understanding of how accounting works. Understanding basic accounting will help provide you with the knowledge you need to keep your business afloat.
#1: Keep Things Separate
As a small business, you will want to ensure that you keep your personal and business expenses separate. Far too many business owners make the mistake of mixing up their personal and business expenses.
You will want to have two different bank accounts and credit cards for your personal and business life. Don't keep the cards for your business in your personal wallet. Have a separate wallet for holding your business cards.
Mixing up your personal and business transactions can make accounting messy at best and can increase your personal liability at worst. So, when making purchases, make sure you are using the right account, and if you need to run two transactions when you check out somewhere, do it. It is worth it to keep personal and business accounts completely separate.
#2: Categorize All Expenses
Second, you will want to get into the habit of labeling and categorizing each expense for your business. This will make it much easier when tax time rolls around to claim your credits and to take advantage of all the write-offs you deserve.
Make as many of your expenses transactions as possible with your company credit card; this will allow you to keep track better of all your expenses. You should also upload copies of all receipts and invoices to go along with the transactions into your accounting software. The better records you have, the easier your taxes will be.
#3: Update Your Books Weekly
Letting all of your receipts, invoices, and other paperwork pile up can lead to a lot of stress and confusion. That is why you should set out a time once a week to ensure that all of your expenses are correctly categorized, label all of your income, and ensure that each of our invoices is paid. If you use accounting software, this process shouldn't take that long to complete. You can reconcile your bank accounts and credit cards with your accounting program.
When it comes to running your small business, it is important that you understand basic accounting principles. This will help you guide your business in the right direction. You can also employ the service of a professional accountant and get them to help you manage your finances.