5 Basics of Accounting You Should Know When Starting Your Own Business
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Even if you don’t have a background in accounting, to run a successful business, it’s important to understand some accounting basics. Knowing how much money you’re spending and earning is key to your business’ financial health.
Luckily, protecting yourself from financial strain is easy. You simply need to remember the following key points:
1) Consider Structure Options
There are many different types of business structure options available, including LLCs, LLPs, and sole proprietorships, among others. Research them thoroughly before choosing one. Some will likely deliver greater tax benefits than others, so making the right choice is very important from a financial perspective.
2) Create a Business Bank Account
Creating a separate business bank account protects you from audits (to a degree). It also ensures you won’t ever confuse your personal finances for your business finances. Thus, it’s a very important early step to take when starting a business.
3) Proactively Track Expenses
You already know you need to spend money to make money, so long as you don’t keep spending more than you’re making. That’s why tracking expenses is crucial.
Expenses can range from monthly software subscriptions to weekly team lunches to desks at a co-working space. It’s also important to remember to pay for any business-related expenses with your company bank account. However, some entrepreneurs procrastinate on recording and tracking costs. That’s a mistake. If you wait to record expenses, you can easily overlook some, resulting in inaccurate accounting. Record expenses as soon as they’re incurred to ensure complete accuracy.
4) Invoice Fast
Don’t start a project until you and the client have agreed upon when you can send them an invoice after the work is complete. This guards against future disputes. Once you reach the agreed upon milestone, send your invoice right away to ensure prompt payment. Wait to invoice, and you may run out of funds to pay your employees or purchase supplies.
It’s possible you’ll struggle with clients who don’t pay on time. Automate reminder emails to continue pursuing payment without spending too much time doing so, and consider offering discounts for early payments or requesting upfront deposits to avoid these situations in the future.
5) Pay Fast
As a business owner, you’ll also receive invoices from your suppliers. Pay them as soon as you receive them. If you don’t maintain a healthy relationship with suppliers, they may be reluctant to help you when you need assistance completing rush jobs.
As your business grows, you may hire employees whose jobs specifically involve addressing your accounting needs. However, in the early stages, you probably won’t have that opportunity. Remembering to take these steps will keep your business in good financial condition in the meantime.