By DeVry University
October 16, 2022
9 min read
October 16, 2022
9 min read
Small businesses have been described as the backbone of the American economy. Driven by a group of creative and diverse risk-taking entrepreneurs, small businesses of all kinds fuel our economy and add flavor to our communities.
According to reporting by Forbes, 99.9% of businesses across the United States are small businesses, which means they meet various criteria for establishment size, sales and revenue and industry sector. You may be surprised to know there are 33.2 million small businesses across the United States, and that nearly half of all U.S. employees are employed by a small business.
These facts reveal the important contribution small businesses make to our economy. One of the most important steps you as an entrepreneur can take is to set up a robust small business accounting system to ensure a solid foundation for your growing business.
In this article, we’ll outline how to do accounting for small business, defining some of the common terms and tasks you’ll encounter, and discuss when you may want to look for professional help with your books.
Check your cash position: Begin each business day by checking how much cash you have on hand.
Record each business transaction: Record business transactions including customer billing, cash received from customers and payments made to vendors.
Document and file receipts: This includes invoices sent, receipts from check, cash or credit card deposits and all cash payments.
Review unpaid bills from vendors: Keep a folder for these accounts payable items and keep track of the due dates.
Pay vendors and sign checks: Track your accounts payable and be sure to have funds earmarked for on-time payment to suppliers. This will avoid late fees and maintain positive relationships with key suppliers. Whether you pay online or put a check in the mail, keep copies of invoices using accounting software to make things easier at tax time.
Prepare and send invoices: Your invoices should be configured in a way that encourages customers to pay on time. Be sure to include payment terms and a firm due date. Without a due date, it will be difficult for you to forecast your monthly revenue.
Review projected cash flow: Managing cash flow is crucial to the health of your business. Forecast how much cash you will need in the coming weeks and months to be sure you have enough to cover your overhead costs.
Balance your checkbook: Just like you would with your personal checking account, you need to know that your cash business transaction entries are accurate, and no errors have been made by you or the bank.
Review aging and past-due receivables: Keep an eye on these open invoices. The beginning of the month is a good time to send reminders to about overdue payments.
Analyze inventory: If your business maintains inventory, set aside some time to reorder the products that sell quickly and identify others that stay on the shelf too long and may have to be marked down. Compare what you find to the previous month’s numbers to identify trends.
Process payroll and taxes: Regardless of the schedule you’ve established for paying your employees, you’ll need to meet the payroll tax requirements of federal, state and local authorities. This involves withholding, reporting and depositing income tax, Social Security, Medicare and disability taxes on the required dates. As your business grows, a payroll service provider can save you time and ensure accuracy.
Review the P&L: Measure your profit and loss statement for the current month and year-to-date against your monthly or quarterly budget, and against the same prior period. This will tell you whether you’re spending too much or not enough and help you determine where to adjust.
Review month-end balance sheet vs. prior period: Compare your balance sheet over time to get a picture of how you’re managing assets and liabilities, identify anything that is significantly up or down and understand the trend.
Prepare revised annual P&L estimate: Get a clearer picture of how much money your business is actually making by looking at the differences between revenues and expenses, what caused those variations and how you are spending the profits. Identify trouble areas and adjust improve sales and profit margins.
Review quarterly payroll reports and make payments: You’ve been reviewing your semimonthly payroll reports, but the IRS and most states also require quarterly payroll reports and any remaining quarterly payments.
Review sales tax and make quarterly payments: Be sure to comply with any state requirements for collection, reporting and payment of sales tax.
Compute estimated income tax and make payments: The IRS and most states collect income taxes. Review your year-to-date P&L to see if you owe any estimated taxes for the quarter. Here’s where a tax accountant can help.
Review past-due receivables: Check those receivables that are significantly past-due and determine whether you think the bill will be paid, or if you’ll send it to a collection agency or write it off as losses for a tax deduction.
Review your inventory: This review is important to determine the value of items not sold. If you don’t do this, you may be overstating your inventory balance and paying excessive taxes.
Complete IRS forms W-2 and 1099-MISC: Mail copies of these forms to the people who worked for you during the year. The W-2 applies to employees and the 1099 applies to independent contractors.
Review and approve full-year financial reports and tax returns: Before handing them over to your accountant, carefully review your business’s full-year financial reports. Before signing your tax return, be sure to review it for accuracy based on those full-year financial reports. This will help you avoid any additional taxes, penalties or interest.
1Program, course, and extended classroom availability vary by location. In site-based programs, students will be required to take a substantial amount of coursework online to complete their program.
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In New York, DeVry University operates as DeVry College of New York. DeVry University is accredited by The Higher Learning Commission (HLC), www.hlcommission.org. The University’s Keller Graduate School of Management is included in this accreditation. DeVry is certified to operate by the State Council of Higher Education for Virginia. Arlington Campus: 1400 Crystal Dr., Ste. 120, Arlington, VA 22202. DeVry University is authorized for operation as a postsecondary educational institution by the Tennessee Higher Education Commission, www.tn.gov/thec. Lisle Campus: 4225 Naperville Rd, Suite 400, Lisle, IL 60532. Unresolved complaints may be reported to the Illinois Board of Higher Education through the online compliant system https://complaints.ibhe.org/. View DeVry University’s complaint process https://www.devry.edu/compliance/student-complaint-procedure.html Program availability varies by location. In site-based programs, students will be required to take a substantial amount of coursework online to complete their program.
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