Ten Invaluable Accounting Tips For Any Small Business Owner

Let’s face it – for the average person, accounting hardly has the most stellar reputation. When it comes to the nitty gritty of crunching numbers, analyzing spreadsheets, and cross-referencing data, most business owners are not particularly keen to jump right in. Needless to say, many of our entrepreneurial clients have given audible sighs of relief upon allocating their financial workload to talented CPA’s.

Unfortunately, in the world of business, professional accountants are not always on-hand to provide assistance. Chicago is a city that is absolutely crawling with budding entrepreneurs – small-time business owners looking to fulfill their professional goals at minimal costs. For anyone who falls into that category, we have some bad news – you are going to have to learn (some) accounting. Fortunately, Accounting Solutions Ltd. has decades of cumulative experience under our belts, and we are more than happy to share some rudimentary tips for all of those suffering from numerophobia (fear of numbers).
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1. Find Software That Works For You: Sure, Excel is a tried and true method of tracking data, but, when it comes to actual accounting, we recommend finding software that is specifically tailored to the task on hand. There exist thousands of applications that fulfill this purpose- some of our favorites include Quickbooks, Freshbooks, Xero, and Unify. If you are unsure what works best for you, try out some of the software that offers free trials. Still stumped? Give us a call or check our blog for more information. User reviews can also provide you with a good idea of what you’ll be getting into.
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2. Watch Your Cash: The most basic way to determine whether or not your business is profitable is to check your cash flow. To put it in the most basic terms – you want more money coming in then going out. Of course, things are not quite that simple. For someone new to the business world we recommend starting to watch the timing of payments coming in – are they affected by holidays? When are your bills actually due? When do you plan on paying your employees?
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These are all things that should be mapped out, as a deficiency within incoming profits can easily break apart a small business. Other things to think about include the payment methods that you offer your customers, whether or not there are delays on your payments and statements, and how seasonal changes may affect the cash flow overall.
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When mapping out expenditures, we recommend calculating the money spend in units of time. Annual budgets, quarterly budgets, and even weekly budgets are all things that you should start getting accustomed to handling. Keeping a reserve of excess cash stashed away in your business bank account as back-up is strongly recommended.
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3. Watch Your Inventory: If your company sells physical items, it is imperative that you know how to oversee the volume of your inventory. The numbers associated with your stock directly correlates with the value of your business, and you should always consider your inventory as a central component of your accounting strategy.
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Part of inventory tracking revolves around the prices of the products themselves. If the price is to increase overnight, your items are now worth more. This works in the reverse as well, known as ‘shrinkage’. Shrinkage affects most businesses that keep and sell physical products, and is generally the result of missing or stolen items or a sudden drop in product value.
By keeping a watchful eye over your inventory, you can account for shrinkage and have a better understanding of where the value of your assets sits financially.
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4. Understand Goods Sold: Sometimes, selling a product is not as simple as acquiring it then handing it off to a customer in exchange for money. There are many other factors that must be taken into consideration for many businesses, particularly those who aim to ship their products directly to clients.
The cost of the item itself, packaging, shipping costs, and any additional fees that may be tied to its re-sell or acquisition should certainly factor in to the costs of goods sold. This can get very complicated very quickly, and we generally recommend that you work with averages when determining budgets.
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The important thing to take away from this step is that pricing is not plain and simple. As a small business owner you must get accustomed to interpreting the myriad of charges that inevitably tie to having a physical inventory so that you may act accordingly.
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5. Expenses Can Be Expensive: When analyzing the cash flow of any enterprise, one of the first things that should be examined are ‘fixed expenses’. These are expenditures that do not typically change, regardless of the financial health of the business in question. Common examples of fixed expenses include rent, interest on loans, utility payments, and insurance costs. Even if nobody chooses to purchase a single item from your inventory, it is inevitable that you pay these, or else risk moving your company under an overpass. For every budget that you calculate, remember that these expenses should always be included.
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6. How Do You Break Even? There is nothing more stressful than looking at your quarterly budgeting spreadsheet only to realize that you have actually lost money. In order to alleviate this horrendous occasion, it is vital that you understand what it costs your business to break even in terms of expenditures.
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For retail or inventory based businesses, a big ticket item within your calculations should likely revolve around just how many products you must sell in order to make ends meet in terms of fixed expenses as well as the money that you used to acquire these items in the first place.
Having a good grasp on exactly how you plan on breaking even (and ideally, accumulate profits) is an important factor in regards to how you should steer your business moving forwards. If you are losing profits because you are offering free shipping, then perhaps it is time that you alter your policy.
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7. Watch Your Sales: Having a solid budget in place that accounts for all aforementioned expenditures and factors is a great start. Now, the next step should revolve around actually tracking where your inventory is going, and at which rate. For this purpose we strongly recommend using software such as Google Analytics, which is designed to plug-in to any e-commerce website.
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As with most things in the wondrous world of accounting, tracking sales is not often as easy as it may seem. Be sure that you are mindful of spurious factors such as payment plans, re-occurring transactions, and taxes that may apply to where you are shipping items. Speaking of taxes, remember to…
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8. Set Up The Proper Tax Rates For Customers: Taxes are everyone’s favorite pet peeve. If your business sells a variety of different products and services to a far-reaching customer base, the government’s mandatory charges and restrictions are likely going to become quite complicated.
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Fortunately, thanks in part to modern technology, e-commerce systems are great at detecting when certain items should correspond with taxation. Shopify, for example, has a setting that allows you to flag certain products as being taxable. This is an invaluable tool that ultimately can save you time, and, arguably more importantly, money. If you neglect to apply taxes to your customers, you may find yourself in a financial rut.
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9. Fit Your Tax Payments Into Your Plan: While your customers are being taxed for purchasing certain items or services, don’t forget that your business itself is subject to a similar plight. When determining which tax laws and regulations apply to your company, start off with the physical location of the business itself. One rule to always consider is that the taxes that your clients are paying as a result of utilizing your services are ultimately going to have to be converted into payments that your enterprise provides to the government when tax season rolls around.
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A common mistake that new business owners make is to fail to acknowledge the presence of taxed dollars within their profits. This can prove to be an unwelcome surprise when the IRS hands you a bill that cuts deeply into your cash flow.
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10. The Subtle Art Of The Balance Sheet: If you are analyzing the future of your company solely based off income sheets, it is time to re-think your strategy. The best indicator of how business is going, and perhaps where you should steer it next, revolves around the balance sheet.
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To put it simply: balance sheets cover assets, liabilities, and equity. Assets are comprised of items of value, this can include hard cash in your bank account. Liabilities are debts or payments that you owe, such as fixed expenses. When you calculate the difference between those two items, you will have your equity.
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The balance sheet that you should be aiming for should, of course, have your equity listed in terms of positive, not negative numbers. Knowing where your enterprise lies in terms of what it owes, and what it actually has, is not only an imperative component of accounting, but it is the bread and butter of business management as a whole.
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Ten pointers is certainly not enough space to encompass the enormous width and breadth of the field of accounting. We do hope, however, that it provides ambitious business owners with a good start. As iterated in step one, everything starts with finding the right software. From there, you will find that being mindful of absolutely every factor that can affect the numbers on your balance sheet is the best way to proceed. Until you have a rigid formula in place, or, perhaps acquire the resources needed to hire a full time accountant, you will have to get accustomed to piecing together the numerical puzzle that is your company in a way that ultimately yields profit.
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We hope this has been a helpful post, dear reader. Rather than wait for another ten steps to be published online, feel free to reach out to us via phone or our website so that we can answer your accounting questions!

Chris Amundson is President of Accounting Solutions Ltd. located in Chicago, Illinois

Chicago Accounting Firm & Tax Solutions for Small Businesses

Last updated on February 20, 2019
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