What Are Some Accounting Strategies?
Far too few business owners understand the role that smart accounting plays in their success. But make no mistake – it can make or break any business venture. With a qualified outsourced accounting team and the right new business accounting approach, you can avoid making some of the epic blunders that have sent far more capable entrepreneurs sprawling in their efforts to take flight.
Accounting is an important business function companies use to gather, record and analyze financial information. This financial information often provides detailed information regarding business operations. Companies may also use historical financial information to plan new strategies for growing business operations. Developing a growth strategy centred on financial information may give business owners and managers reasonable expectations for future operations. Owners and managers may also use financial information to determine where to make improvements in their businesses.
Basics of Small Business Accounting
This list of small business accounting steps will give you the confidence to know you’ve covered your bases and are ready to move on to the next item on your business to-do list.
Open a bank account
After you’ve legally registered your business, you’ll need somewhere to stash your business income. Having a separate bank account keeps records distinct and will make life easier come tax time. It also protects your personal assets in the unfortunate case of bankruptcy, lawsuits, or audits. And if you want funding down the line, from creditors and investors alike, strong business financial records can increase the likelihood of approvals.
Note that LLCs, partnerships, and corporations are legally required to have a separate bank account for business. Sole proprietors don’t legally need a separate account, but it’s recommended.
Start by opening up a business checking account, followed by any savings accounts that will help you organize funds and plan for taxes. For instance, set up a savings account and squirrel away a percentage of each payment as your self-employed tax withholding. A good rule of thumb is to put 25% of your income aside, though more conservative estimates for high earners might be closer to one third.
Next, you’ll want to consider a business credit card to start building credit. Credit is important for securing funding in the future. Corporations and LLCs are required to use a separate credit card to avoid commingling personal and business assets.
Before you talk to a bank about opening an account, do your homework. Shop around for business accounts and compare fee structures. Most business checking accounts have higher fees than personal banking, so pay close attention to what you’ll owe.
To open a business bank account, you’ll need a business name, and you might have to be registered with your state or province. Check with the individual bank for which documents to bring to the appointment.
Track your expenses
The foundation of solid business bookkeeping is effective and accurate expense tracking. It’s a crucial step that allows you to monitor the growth of your business, build financial statements, keep track of deductible expenses, prepare tax returns, and legitimize your filings.
From the start, establish a system for organizing receipts and other important records. This process can be simple and old school (bring on the Filofax), or you can use a service like Shoeboxed. For American store owners, the IRS doesn’t require you to keep receipts for expenses under $75, but it’s a good habit nonetheless.
There are five types of receipts to pay special attention to:
- Meals and entertainment. Conducting a business meeting in a café or restaurant is a great option, just be sure to document it well. On the back of the receipt, record who attended and the purpose of the meal or outing.
- Out of town business travel. The IRS and CRA are wary of people claiming personal activities as business expenses. Thankfully, your receipts also provide a paper trail of your business activities while away.
- Vehicle-related expenses. Record where, when, and why you used the vehicle for business, and then apply the percentage of use to vehicle-related expenses.
- Receipts for gifts. For gifts like tickets to a concert, it matters whether the gift giver goes to the event with the recipient. If they do, then the expense would be categorized as entertainment rather than a gift. Note these details on the receipt.
- Home office receipts. Similar to vehicle expenses, you need to calculate what percentage of your home is used for business and then apply that percentage to home-related expenses.
Starting your business at home is a great way to keep overhead low, plus you’ll qualify for some unique tax breaks. You can deduct the portion of your home that’s used for business, as well as your home internet, cell phone, and transportation to and from work sites and for business errands.
Any expense that’s used partly for personal use and partly for business must reflect that mixed-use. For instance, if you have one cell phone, you can deduct the percentage you use the device for business. Gas mileage costs are 100% deductible, just be sure to hold on to all records and keep a log of your business miles (where you’re going and the purpose of the trip).
Investigate import tax
Depending on your business model, you may be planning to purchase and import goods from other countries to sell in your store. When importing products, you’ll likely be subject to taxes and duties, which is worth noting if you run a dropshipping business. These are the fees your country imposes on incoming goods. Learn about importing goods into the US and Canada, and the associated taxes, so you know the rules from the get-go.
Also, if you’re importing goods, a duty calculator can help you estimate the fees in your own business and plan for costs.
Establish sales tax procedures
The world of e-commerce has made it easier than ever to sell to customers outside of your state and even country. While this is a great opportunity for brands with growth goals, it introduces confusing sales tax regulations.
When a customer walks into a brick and mortar retail store, they pay the sales tax of whatever state or province they purchase in, no matter if they live in that city or they’re visiting from somewhere around the world. However, when you sell online, customers may be located in different cities, states, provinces, and even countries.
Canadian store owners only need to start collecting GST/HST when they have revenues of $30,000 or more in 12 months. You can submit the GST/HST you collect in instalments. If you want, you can collect GST/HST even if you don’t earn this much in revenue, as you can put it toward input tax credits.
Selling to international customers can be easier than domestic sales. Canadian store owners don’t need to charge GST/HST to customers who are outside of Canada.
For American store owners, sales tax gets a bit trickier. You’ll need to determine if you operate your business in an origin-based state or destination-based state. In the former, you must charge sales tax based on the state where you run your business. The latter requires sales tax to be applied based on the purchaser’s location.
International purchases are tax-exempt for US-based businesses. This can all get a bit complicated, so check in with your accountant for detailed information about your specific state’s regulations regarding international sales tax.
Determine your tax obligations
Tax obligations vary depending on the legal structure of the business. If you’re self-employed (sole proprietorship, LLC, partnership), you’ll claim business income on your personal tax return. Corporations, on the other hand, are separate tax entities and are taxed independently from owners. Your income from the corporation is taxed as an employee.
Self-employed people need to withhold taxes from their income and remit them to the government in lieu of the withholding that an employer would normally conduct. For American store owners, you’ll need to pay estimated quarterly taxes if you’ll owe more than $1,000 in taxes this year. Canadians have it a little easier; if your net tax owing is more than $3,000, you’ll be required to pay your income tax in instalments.
Calculate gross margin
Improving your store’s gross margin is the first step toward earning more income overall. In order to calculate the gross margin, you need to know the costs incurred to produce your product. To understand this better, let’s quickly define both cost of goods sold (COGS) and gross margin.
- COGS. These are the direct costs incurred in producing products sold by a company. This includes both materials and direct labour costs.
- Gross margin. This number represents the total sales revenue that’s kept after the business incurs all direct costs to produce the product or service.
The difference between how much you sell a product for and how much the business takes home at the end of the day is what truly determines your ability to keep the doors open.
Apply for funding
There are many scenarios where a growing e-commerce business might need to secure external business financing, be it through a line of credit, investors, a small business loan, or even a business partner.
For instance, you might have an unexpected downturn in sales due to uncontrollable external circumstances, or maybe you need a financial boost during slow periods in a seasonal business. Brands with big growth goals often need to secure funding to make investments in new product developments, inventory, retail stores, hiring, and more.
Remember, to get a small business loan, you’ll likely have to provide financial statements—a balance sheet and income statement at the very least, possibly a cash flow statement as well.
But before you sign off on the debt, it’s important to make sure the numbers make sense. In other words, it’s a good idea to calculate the ROI of the loan. Add up all the expenses you need the loan to cover, the expected new revenue you’ll get from the loan and the total cost of interest. You can use our small business loan calculator to find out the total cost.
Periodically re-evaluate your methods
When you first start out, you may opt to use a simple spreadsheet to manage your books, but as you grow, you’ll want to consider more advanced methods like Quickbooks or Bench. As you keep growing, continually reassess the amount of time you’re spending on your books and how much that time is costing your business.
The right bookkeeping solution means you can invest more time in the business with bookkeeping no longer on your plate and potentially save the business money. Win-win!
Different Accounting Strategy to Enhance your Business
A few accounting growth strategies include expanding through profits, accelerating income, building strategic business relationships, diversifying business operations and streamlining current production operations. Each type of growth strategy requires business owners and managers to focus on different aspects of their company. These growth strategies may also depend on the size and strength of current business operations. Smaller businesses have fewer options available when creating new types of accounting growth strategies.
See why you may want to take advantage of a different strategy to enhance your business.
Your Business Has Outgrown Your Accounting Expertise
As your company grows, you encounter financial scenarios that you may not have foreseen. Interstate commerce, local and state tax application, foreign exchange rates, and international regulations all require the expertise of a qualified accounting professional to keep records updated and by applicable regulations and generally accepted accounting principles (GAAP).
Using outsourced accounting services is one strategy your business can use to address your growing financial needs with the expertise you require without the stress of building a brand new team from scratch. There is no need for a full hiring process, providing office space or finding even more storage space; outsourcing allows you to take control of complex accounting situations and save time and money in the process.
Your Employees Have Too Much on Their Plate
If your employees have been multitasking in order to stay on top of bookkeeping jobs, outsourcing can eliminate their distractions and let them get back to their duties. In addition, the combination of outsourcing and using an online accounting service provides access to all the documents your employees still need to perform their functions while also ensuring that GAAPs are satisfied. Everyone stays focused on what they do best.
Standing out online is essential because that’s where your customers spend their time.
It’s not all about social networking, though. Begin with managing your Google listing, then consider email marketing and LinkedIn or Facebook.
An accurate Google listing is essential because most web traffic comes from search engines. If you create a listing on Google My Business with correct contact details, then you’ll be found more easily. You can ask your customers to leave reviews and ratings too, and this will have similar effects as word of mouth.
Next up is email marketing. It’s an effective way to engage your audience as statistically, around one in five subscribers will open your emails.
But your content needs to be valuable and relevant to have an impact. For example, a round-up of the latest budget announcements and their likely effects would probably interest many people. The key takeaway is tailoring your communication to the target audience.
Social networks are undoubtedly powerful platforms to connect with others, but they are also time-consuming. Whichever network you choose, you’ll need to use it regularly, monitor your account and respond to comments and feedback. That’s why it’s a good idea to focus your initial efforts on one platform only — probably Facebook or LinkedIn — depending on where you expect your customers to be. For more information, CPA Australia offers in-depth guidance and even sample posts.
Raising your profile face to face
Despite the growth of digital strategies, marketing for accountants involving face to face interactions remain pivotal. For example, attending and speaking at local events can raise your accounting firm’s profile amongst the community significantly. Running workshops establishes your practice as experts in the field. Additionally, regular quality conversations with clients and business partners can deepen relationships and generate additional sales.
You Need an Accounting Staff Rather Than an Accountant
When your accounting needs to expand past what one person can handle, you may want to consider supplementing your accounting strategy by using an online bookkeeping service. The median salary for CPAs is $67,190, but with an online service, you get access to a team of experienced accountants for a fraction of the cost of hiring an entire staff. Online accounting services also give your company access to specialized accounting knowledge that you might otherwise find difficult to obtain.
Keep in mind that if you have been using a dedicated CPA to manage all of your tax and bookkeeping functions, you may be incurring higher than necessary costs for certain tasks. For example, the hourly rate of a seasoned bookkeeper, even one utilized through a professional bookkeeping service, will likely be significantly less than your CPA’s hourly rate. Employ the right professional for each task you have to not only improve functional efficiencies but also improve cost efficiencies.
Your Accounting Software Is Outdated
Keeping your accounting software up to date can be daunting. Technology is changing at an exponential rate, and if your software isn’t able to keep up on-site and with mobile applications, you won’t have the capabilities you need. Going with an online accounting solution gives you the latest changes as they roll out.
Current accounting technology includes solutions for general ledger, expense reporting, time tracking, inventory, and bill payment. The sheer volume of applications, even in niche industries needs a comprehensive service offering. The best way to review options is to ask for demos from the various applications that may fit the bill and then review the integration and synchronization options available for your current systems. You may find that one or more solutions integrate better than another while providing the same level of data management.
You Need Room to Grow
Whether your company is already outgrowing your staff or the market is ripe for growth, you may find that you need scalability in your accounting software. Both outsourcing and taking advantage of online accounting services can provide your business with additional features, and expertise scaled to meet your needs now and expand as your organization does.
Growth is a natural process in the life of your business. Rethinking your accounting strategy helps you use your resources wisely even when you need to add to the features and functions you can use. Whether your accounting needs include tackling daily tasks, incorporating mobility solutions or garnering expertise in expanding service markets, online and outsourcing solutions can provide what you need to support your business.
What does an accountant do for a small business?
A small business accountant does many things, including the following:
- Form your business
- Help write a business plan
- Audit your cash flow
- Find cost-cutting opportunities
- Advice on business strategy
- Manage debt
- Chase down payments
- Write and submit loan applications
- Plan budgets
- Set up your accounting software
- Manage inventory
- Recommend business tools
- Help open new bank accounts
- Oversee payroll
- Year-end financial reporting
- Prevent audits
- Advice on personal finances
Starting a business can be an overwhelming process, but if you follow these tips and strategies, you’ll have your new store’s finances in order from the beginning. From opening the right type of bank account to determining how much you’ll bring in per product, these tasks will all contribute to your business’s success, now and as it grows.