Launching your own business can be thrilling, but also overwhelming. There are many things to take care of when you're an entrepreneur, from promoting your brand and hiring your team to accounting. Like many other aspects of doing business, accounting can seem daunting, so we created this guide with 10 key accounting tips for new business owners so you can start out right and set yourself up for success.
1. Create a business bank account
You might be tempted to use your personal bank account when starting out, but mixing your personal and business finances is one of the most common mistakes a new business owner may make and can become a huge headache in the future.
Open a separate business bank account as soon as you decide to start your own business, even if you’re operating as a sole trader. This not only separates your accounts, but also helps you track easily how much money you’re making and spending on your business. This way, you can monitor your cash flow, budget, and plan for the future. Also, it makes tax time easier - you won’t have to spend hours on finding your business transactions in your bank statements.
2. Use an accounting software
Accounting softwares, such as Xero, can help you automate and simplify your accounting and bookkeeping tasks. For example, you can use it to record and categorise your transactions, generate invoices and receipts, reconcile your bank statements, create reports and dashboards, calculate taxes, and so much more.
You don’t have to be the most tech-savvy business owner out there, most accounting software platforms are designed to be simple and intuitive so you can spend more time on running and growing your business.
3. Create a chart of accounts
A chart of accounts comes in handy when you’re tracking transactions in your accounting software. It's essentially a bunch of ‘codes’ that you use to label every transaction you make. For example, you might have codes for Income, Assets, Liabilities, and Expenses. Or maybe something else that works better for your business – an accountant or a bookkeeper can help you figure that out.
4. Understand how to generate financial statements
Preparing financial statements is so much easier when you have a chart of accounts in place within the right software. These key financial statements include profit and loss statements, balance sheets, and cash flow statements. You don’t need to be an expert to create these reports, these accounting platforms are easy to use and allow you to generate these useful documents easily.
5. Keep track of cash payments
You should always record your cash payments - this will help you keep track of where your money comes from and where you spend your money. Also, you can easily see how profitable your business is and plan your budget accordingly.
Fortunately, the easiest way to record your cash transactions is to use a cloud-based accounting software. Not only can you record and categorise your transactions, but also access your cash records anytime and anywhere on your devices (mobile or laptop), as long as you have an internet connection.
6. Organise your financial documents from the beginning
One of the most important things for new business owners to remember is to have your financial documents in order from the beginning. This means you need to keep track of all the papers related to your business, such as receipts, bank statements, contracts.
You can either put these documents in a physical place or keep them digitally (e.g., in cloud files or your accounting software). This will help you stay organised - making it easier to find documents you need at any given time.
7. Keep track of key dates
You may have a lot on your plate already, but don’t forget about your tax obligations. Make sure you keep the key tax dates in mind and always plan ahead so you don’t have to pay fines or penalties.
Some common tax deadlines are:
- Income tax: most businesses have to lodge their income tax return by 31st of October each year, unless they have a different due date. If you use a registered tax agent (such as Beany), you may be able to get an extension of time to lodge and pay your tax, usually 15th of May the following year.
- BAS: depending on your turnover and preferences, you may need to lodge your BAS monthly, quarterly, or annually. The due dates vary depending on the reporting period and whether you lodge online or by paper. There are also extensions if you lodge through a tax or BAS agent.
8. Put money aside for taxes
Putting money aside for taxes will help you avoid stress and hassle when tax season comes around. This way, you’ll be able to file your taxes on time and keep your business running smoothly. At Beany, we often recommend putting aside 30% - 35% of your income. However, this percentage may vary depending on how you set up your business and your tax obligations - your accountant can advise you here.
9. Choose an accounting method
There are two main accounting methods: cash basis and accrual basis. Cash basis accounting means that you record income when you receive it, and expenses when you pay them. Accrual basis accounting is essentially opposite of cash basis accounting - you record income when you earn it (i.e. when you invoice your customers) and expenses when you incur them (or when you receive an invoice from your suppliers).
The method you choose will affect how you report your income and expenses, and how you pay taxes. You should always consult with an accountant or a tax professional to decide which method is best for your business as there are certain concessions and reporting obligations to consider depending on the size of your business.
10. Hire a professional
Let's face it, doing business can spread us thin. You’ll likely have better things to do with your time than learning the ins and out of accounting. That's why you need a good accountant on your side - they can help you minimise your tax responsibilities and provide valuable business advice.
Who is Beany?
Need help with your accounting and tax? Let Beany do the heavy lifting so you can focus on what you’re good at - running your business. Here’s how we can help you, whether you’re a new business owner or who wants to take your business to the next level. Check us out at beany.com. At Beany, we're more than just accountants, we're your partners. We're here for you whenever you need us, with the services and support you need. If you have any questions, just drop us an email or give us a call. We're always happy to help.