What is small business accounting - How to do it? - Imprezz

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What is small business accounting How to do it?

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As a small business owner, you must master the
art of accounting at some level. Small business
accounting is all about the process, system, and
people (your team members). It is done by
recording expenses, profits, and financial
information of each business transaction. These
tasks are essential to track and manage money
effectively, crucial during the early stages of
development. In addition to keeping you
up-to-date with your companys performance in the
past and present, small business accounting also
helps create invoices and complete payrolls. One
of the most common reasons why small businesses
fail is the lack of money management. However,
having an accounting strategy helps to review
your companys financial goals. Irrespective of
your business type, the survival solely depends
on clearly defined financial plans. The best way
to counter small business financial problems is
to implement efficient accounting program
policies and sound financial strategies.
Implementing an ideal accounting system can
eventually boost the financial health of a
business. This article is a part of our
comprehensive guide  ideas for small businesses
to set up in India. Read further to understand
the know-how of business accounting basics.
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What is Small Business Accounting? Accounting is
a higher-end process that examines the progress
of the business. It gives meaning to the accounts
data that the accountant collects through
generating financial statements. Likewise, small
business accounting helps track money coming in
and going out of your business accounts. It
includes sales, purchases, payments, and
obligations. Accounting helps you measure the
health and value of a business, to make better
decisions about short- and long-term success. As
a small business owner, you need to know what
accounting method best suits your organizational
goals to succeed and sustain in the long run.
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How to do Accounting for Small Business?
Accounting Basics Accounting is the financial
language of business. It enables business owners
to analyze the utility of resources and funds
within the business. The function of accounting
is to record finances, interpret numbers, and
determine the financial standing and prepare
tax-related financial materials. If you are
wondering how to do accounting for your small
business, you have come to the right place. Here
are ten golden rules to do it right.
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•   Create a Separate Bank Account for Your Small
  Business
• Legally registered small business requires a
  place to stash the incurred income. Opening a
  separate bank account helps maintain distinct
  records that further simplifies the tax
  procedures. Business registered under LLC
  (Limited Liability Company) and partnership are
  mandated to have a separate bank account as per
  the legal rules. Sole proprietors and other
  businesses may not have a determined bank
  account however, it is recommended.
• Start by checking with individual banks to
  determine what type of account is best for your
  business type. Creating a savings account helps
  save a certain percentage on each payment as a
  deducted tax amount. This way, you can organize
  money and plan for taxes accordingly. Once you
  have successfully created a separate bank
  account, you must use a dedicated credit card to
  build business credit that bifurcates personal
  and business assets.
• Consider doing your homework before you approach
  any bank for opening an account. You need to
  compare the fee structures offered by a bank.
  Most corporate banks have higher fee structures
  compared to personal banks. You need to know what
  you owe to the bank you choose for your small
  business.

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2.   Track Your Income and Expenses Learning how
to track your income and expenses effectively is
the key to establish a robust small business
accounting system. It is a critical step in doing
your accounts right by monitoring growth,
generating financial statements, tracking
deductible expenses, preparing tax returns, and
supporting the generated tax reports. Create a
system that organizes your receipts and other
significant records since the inception of your
accounting system. Note that you should only
record income and expenses that are directly
related to work. Your records should also reflect
any income or expense used partly for personal
life and partly for business under mixed-use. For
instance, you need to record invoices, canceled
checks, purchase orders, and other related
business documents.
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3.   Select Accounting Methods and Establish an
Accounting System Before moving on to creating
an accounting system, it is crucial to understand
what accounting is and what type of accounting
method you should use. Accounting is the daily
process of recording, classifying transactions,
and reconciling bank statements. As a small
business owner, you need to know what account
method best suits your business agendas and then
establish your accounting system. Here are two
different methods of accounting the cash method
and the accrual method. The cash method is
followed by businesses that record transactions
at the time they receive the payments. Wherein
the accrual method is implemented by businesses
that require to track receivables and payables as
they record transactions as and when it occurs
(even if the payment isnt processed).
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4.   Develop a Payroll System As a small
business owner, you might hire part-time
employees or freelancers to work for you to save
costs. However, you need to determine if these
individuals are employees or independent
contractors. For these employees, you need to
develop a payroll system to ensure if taxes are
withheld accurately. You need to record your
employees details and track how much you pay
each individual.
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5.   Understand the Know-How of Import Tax Your
business model determines your plans to purchase
or import products from other countries to sell
in your store. You will be subjected to taxes and
additional fees while importing any product. It
would help if you mentioned these charges and
tariffs applicable to incoming goods in your tax
returns. To know the rules early on, lean about
importing products to India and taxes associated
with them. Several tax rate calculators might
help you in tax calculation and effective cost
planning. Imprezz is one of the recommended tax
calculators for small businesses in India. The
GST accounting software automatically calculates
applicable taxes and generate timely tax returns
with a single click of a button. You need not pay
extra fees for updates, and this way, you can
also save costs and stay GST compliant.
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6.   Determine the Payment Methods When you
start issuing sales invoices, you will need a way
to accept payments. Choosing an ideal payment
gateway has always been a struggle for small
business owners. There are several options
available for local businesses, including PayPal
India, MobiKwik, RazorPay, etc. These payment
gateways save the hassles of setting up a
third-party payment gateway.
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7.   Develop the Sales Tax Procedures The
e-commerce industry has drastically altered sales
tax regulations to an extent where it is a bit
confusing due to website issues. Every time a
customer walks into a physical retail store, they
pay the sales tax applicable as per the state or
province where they make their purchases,
regardless of whether they are a national
resident or a visitor from around the
world. However, small businesses that sell
online often sell to customers from different
states or even countries. For small business
owners in India, international purchases are also
eligible for tax deductions. Owners must consult
their accountants for detailed information on
specific regulations regarding national and
international sales tax. Thus, small businesses
must launch effective sales tax procedures.
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8.   Establish Tax Obligations Tax obligations
may vary according to the legal structure of your
business. If you are self-employed (sole
proprietor, limited liability company,
partnership), you need to report business income
on your tax return. On the other hand, companies
are separate tax entities and are taxed
independently of the owners. As an employee, your
income from the company is taxed.
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9.   Know Your Gross Margins Optimizing your
stores gross margin is a primary step to getting
more income. To calculate gross margin, you need
to know the exact costs incurred in producing
your product. To better understand these
calculations, you need to be well aware of both
COGS (Cost of Goods Sold) and the gross
margin Cost of Goods Sold (COGS)  It is the
direct cost that a business incurs while
producing the products that are being sold.
Direct costs usually include both material costs
and labor costs. Gross margin  It is the number
that represents total sales revenue remaining
after a business has incurred all the direct
costs of producing products or services. Heres
how the gross margin is calculated Gross Margin
() Income Cost of Goods Sold / Income The
difference between the amount of product sold and
how much money a business takes home at the end
of the day determines its ability to keep the
doors open.
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10.   Re-Evaluate Your Accounting Methods
Frequently Small business owners prefer doing it
all by themselves, dont you? When starting for
the first time, you choose to use a simple
spreadsheet to manage your accounts. However, as
your business grows, you might want to consider
more advanced methods like Imprezz online
accounting software. As you grow, it is always
ideal for re-evaluating how much time you spend
maintaining your accounting records and how much
time is costing your business. The right
accounting solution means you can spend more time
improving business without having accounting on
your schedule, potentially saving the business
money.
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Small Business Accounting Checklist How to
Maintain Records Effectively? Business
accounting basics can be drawn down to a handful
of effective practices. Although most business
owners think that these accounting tasks are
daunting, its just a myth. Heres a sketch of an
accounting checklist that can help you stay
up-to-date and analyze your business
position. Daily Accounting Tasks Start every
day by checking your business cash position.
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• Weekly Accounting Tasks
• Record each transaction, at least weekly.
• Record each financial activity in documents and
  keep copies of receipt files.
• Create records, keep track of bills, and review
  unpaid bills.
• Create and send invoices on time.
• Track accounts payable, pay your vendors on time
  and sign checks.
• Create financial statements to review the cash
  flow projections.

• Monthly Accounting Tasks
• Make sure you balance your checkbook.
• Review the accounts receivables that are due to
  the past.
• Check and analyze inventory status.
• Payroll processing.
• Review your profits and losses against the actual
  budget.
• Monthly, review your balance sheet against the
  prior period.

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• Quarterly Accounting Tasks
• File and pay estimated quarterly taxes on time to
  rid of the fines.
• Review and analyze your quarterly payroll
  reports.
• Review and make payments on sales tax.
• Record annual profits and estimates of losses.

• Annual Accounting Tasks
• Review accounts receivables that are due to the
  past.
• Review the status of your inventory.
• Fill out GST tax forms.
• Review and approve annual financial reports and
  tax returns.

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Does Your Small Business Require an
Accountant? In most cases, small business owners
find it more comfortable to hire an accountant or
freelancer to handle accounting tasks
effectively. Some small businesses also prefer
hiring temporary accountants or trained part-time
accounting clerks. However, in each of these
cases, business owners transfer their financial
responsibilities to another person. Outsourcing
financial tasks can be an attractive option for
business owners who lack accounting skills or
hate manipulating numbers in the records. Most
business owners outsource financial duties to
avail of an accounting expert in taxation and
other legal obligations. Hiring a qualified
accountant can help businesses manage financial
details such as business plans, payroll,
financial safety, monitoring financial growth,
cost-saving operations, and GST tax audit. Their
advice help creates a better business structure
that provides flexibility to the business firm.
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Hiring an Accounting Software Small business
owners that are familiar with technological
advancements and accounting principles are likely
to use accounting software. Because time is money
in todays fast-paced world, digital accounting
is a boon. It saves a lot of time compared to
manual accounting practices. Modern accounting
software automatically processes numbers, data
entry, performance tracking, creating reports,
and so on. Once data is entered into the
software, an accurate outcome is guaranteed.
Further, it simples tax filing and
payments. Most software versions provide
integration where several features are compiled
under a single database software. It provides
various functionalities, including tally,
purchase orders, data trends, accounts
receivables, invoices, tax requirements,
quotations, and more. The ability to store
extensive data under a single-platform builds
room for the overall businesss efficiency,
providing easy access to payment history with a
click of a button. Hiring an accounting software
is a much feasible option over accountants.
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Conclusion Small business accounting is
essential to build a more substantial financial
base since its inception. As a small business
owner, its necessary to realize that
implementing the best practices applies to you.
Adhering to basic accounting principles is
essential for the success of a business
irrespective of its volume. Smart record keeping
and financial analysis are imperative to monitor
your expenses and discover new avenues for
growth. Besides, it further ensures that you
remain GST compliant. Modern business owners
usually opt for business accounting software even
when their firm has a dedicated accountant to
handle their finances. However, for small
businesses that operate with little or no
inventory and have only a few employees, simple
accounting software can be of great help. These
essential solutions are affordable and easy to
implement. To rid the risk of spending extra
money on tax audits and inaccurate reporting, you
can choose Imprezz, a pioneer of accounting
software in India. We offer small business
accounting software free trial for 14 days to
determine features that best suit your
organizational goals. Try the free trial today.
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Email - info_at_imprezz.in

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