Accounting is essential for all business organizations. If you even own a small business, you must do accounting to record all the business transactions of your business. Accounting can help a small business in many ways like determining the performance of the business, to take loans from banks in the future, to make business decisions, and many more. Accounting aids in the proper planning of the business activity. It helps every small business to understand the concept of covering the fixed cost and variable costs. If you have a good accounting system, it will enhance the business owners to understand any fraudulent activities done by untruthful employees.
A small business will also have to undergo auditing and with proper accounting, your audit will be smooth. Moreover, an accurate accounting system supports confirm the fulfilment of tax obligations. Creating a budget is essential for any business and it is with accounting you can do it precisely. Apart from all these importance, you can also determine the profit of your business with the accounting system. Besides, you can also present the correct financial statement to investors and lenders to prove your financial stability.
Things Small Business Owners need to know before setting up Accounting
Since you have read the above description, you will now know what business accounting means and its importance. Now you need to know a few things about accounting before you begin with it. An accounting system in a business must always follow the rules known as GAAP – Generally Accepted Accounting Principles. This rule is provided to make sure that everybody uses the accounting system in the same way.
The rule called GAAP lets the owners of the business use either the accrual basis or cash basis when the owners account for their business. The rule also says that you must use one of these mentioned methods regularly. You have the chance to change the accounting basis, but if you need to do so, you will have to file a form with the IRS.
How to Choose between Cash and Accrual Basis?
On a cash basis, the date of the payment received or paid is used. For example, if you carried out your service on Feb 1st, then you sent an invoice on Feb 3rd. You received the payment for your service on March 2nd. So on a cash basis, the journal entry will be recorded with the date March 2nd as you received the payment for it on that date.
On an accrual basis, the date of the revenue you created or expenses incurred are used. So according to the example mentioned above, the journal entry will be recorded with the date Feb 1st as it is on this date that you performed your service. The method of cash basis is very instinctive and it is easy to understand quickly. But the system of cash basis is relative of no use to achieve insights from the accounting data.
Your business will not only have a single transaction. It will have multiples transactions like the example mentioned above and you must choose the best option to make your work easier. Several business owners begin with a cash basis as it is simple to understand and use, but later they switch to the accrual basis when the business becomes more intricate. Whichever basis you chose, you must be well aware of all the rules of your reporting. Only if you are sure about it, you will be able to say that your business is performing well or not. When it comes to the pros of accrual basis, it is great to perform financial analysis and to identify the financial trends. But the accrual basis is difficult to comprehend at the beginning.
Best features of myBillBook app for small business
These days accounting apps are available for small businesses to make your accounting simple, accurate, and easy. Below you can find the main features of the myBillBook to understand how it can support you.
- Financial Report Management
When you maintain SME accounting manually, it can create many errors which will make your financial report inaccurate. This can end in an undesirable impact on the financial stability of your business in the future. With the support of an accounting app, this can be solved. An accounting app can generate financial statements instantly. It also offers real-time financial data and it can adjust to the local financial regulations.
- Transaction and Invoice Management
Creating an invoice is a very essential part of every business. When you create an invoice manually on paper, it takes a lot of time to look for the transaction history and unpaid invoices. Also, there are high probabilities of damaging the paper document or even misplacing it. The accounting apps can create invoices and bills easily and it helps in keeping a track of the client invoices and transaction history through a centralized system. Using an accounting app, you can even set auto-reminders for invoices overdue.
- Gain and Loss Calculation of Foreign Exchange
If your business includes foreign currency transactions, it would be difficult to know the profits made for each transaction. But the calculations of foreign exchange loss and gain are much easier with accounting apps. It is possible because the realized gains and losses of foreign exchange are automatically calculated by the accounting app at the end of every month.
- Forecasting Cash Flow
Forecasting the cash of the business is vital since it helps the business in predicting future income, profits, losses, and expenses. Through this forecasting, the owners or the management can allocate their budgets sensibly. This is very important if you look for investors as they will check the cash flow of the business before investing.
- Asset Depreciation Management
Every company will have valuable assets with them including both tangible and intangible assets. But when the assets are being used for a while, the value of the fixed assets will decrease over time. Here comes the use of financial apps as they can calculate the depreciation of assets of the company automatically within a few seconds.
- What are the best methods to separate my personal and business finances?
You should never mix your personal and business finances as it can create a lot of problems for the owners of small businesses. You must always maintain separate accounts for your personal and business use. Get a business credit can and use different accounting systems for both. You can set up a limited liability company or an S Corp to protect your finances.
- What is the impact of better accounting on my business?
A proper small business accounting system can handle profit and loss statements, balance sheets, and regular account reconciliation which help in controlling your finances easily.
- When should think about outsourcing my accounting?
If you own a very small business and do not have an accountant, you can consider outsourcing your SME accounting task. You can free yourself from all the accounting headaches if you outsource the work. A viable solution is to use myBillBook as your personal accountant.
- What makes CSI diverse from the national payroll providers?
You will work with a particular team member of CSI to provide coaching, advising, and consultation. Since you will be dealing with the only person, he/she will be familiar with your accounts. But with the national payroll providers, it can be a little difficult.