How To Do Your Own Accounting
Welcome to the 21st-century world of "kitchen table" entrepreneurship, where you get to be your own boss but also have to wear all your employee's hats, so to speak. For the "accounting hat," the main thing to keep in mind about accounting is that it's nothing but the same personal budgeting skills you learned in high school. It's just on a bigger scale. The popular conception of accounting is that it involves math skills. This isn't entirely true, because the computer and spreadsheets handle a lot of the calculations. Instead, good accountants have excellent managerial skills, stay organized, and apply rigorous logic to mundane and trivial details. To be effective at accounting requires you to institute a process and system where nothing gets paid or received without being noted in your bookkeeping. Once your small business is set up with a separate bank account (required even for LLCs and partnerships), with a balance and starter capital, here's the outline of your process:
Pick a bookkeeping system.
This can be anything from handwriting on a notepad to a home edition of QuickBooks, but you want to make sure the system will scale with your needs. Ideally, your business should eventually grow to where you’re so prosperous that you can afford to hire an accounting team, at which point you must turn the books over to them. So it’s best to stick with established business practices rather than having to come up with your own ad-hoc system.
Track your expenses.
You have to spend money to make money, so your expenses are likely to be the first thing you’ll accrue. Expenses should include rent and utilities on business space, materials, travel, office supplies, license and permit fees, whatever you had to spend money on.
Set up a payment system.
This is the avenue by which the world will give you money for your goods or services. You will need to have a business plan by this point, phrased as a formula showing your expenses going in and your profits coming out. Even though you are the sole proprietor to start, consider a payroll program with yourself as the sole employee. Chose the salary to award yourself and stick to it, counting your pay as an expense.
Know your tax obligations.
This is the part where you just need to go to a business owner’s website, check out an ebook, or even take a community college course on business taxes 101. Determine your local tax laws for sales tax if you’re selling to customers or applicable taxes on your service fees. Decide also how you’ll be assessing and paying income taxes and start accounting for that. Consult your local tax laws and take advantage of any tax breaks or incentives you’re entitled to. The tax burden on start-up companies is typically minor, even negative, because governments the world over benefit from self-employed entrepreneurs who may create jobs someday.
Calculate your gross margins.
This is the output of that business plan you should have by now. Once you have any net gain, even just 1% per month, that is a viable business plan that only needs improvement to become a growing business. Many businesses operate at a zero margin or even in the red for the first few years, which is why you need investor capital.
Once you have a business accounting system set up, you will want to reassess it every year or so. You want the system to keep scaling with your business, which hopefully will continue to grow with your ambition. Good luck out there!
How Much Does It Cost For A Small Business Accountant? The baseline price for a hired accountant in the United States is between $100 and