Accounting is a crucial part of every business that involves recording, tracking, managing and communicating a company’s financial information.
The accounting process can be overwhelming, especially for a small business owner with little financial experience, and many companies struggle with it. To help get you started, we found answers to some of the most frequently asked accounting questions.
Should I hire an accountant?
Many business owners wonder if hiring a professional to handle their accounting is the right choice for them. Processes like applying for loans or filing for taxes become less daunting with an expert on your side.
Some hire an outside accountant on retainer, while others decide to employ an in-house accountant full time. The choice depends on your business’s needs and resources. If you can’t afford to add an accountant to your payroll but need insight during tax season, you have the option to hire a short-term contractor.
What records should I keep?
Your financial records are crucial for tracking deductions, projecting cash flow and more. According to the IRS, there are two financial statements you should keep a record of:
- Balance sheet, which consists of your business’s income and expenses.
- Income statement, which consists of assets, liabilities and equities in business.
Additionally, you’ll want to keep track of your sources of income, deductibles, basis in the property and any information you might need when filing taxes.
How you choose to finance your business depends on your startup’s needs and its current financial situation.
How do I find my break-even point?
You’ve reached your break-even point when your sales cover your expenses. To calculate it, use these steps:
- Step 1: Factor unit price (price per unit) minus variable costs (costs dependent on sales volume).
- Step 2: Divide fixed costs (costs independent of sales volume) by the amount found in step 1.
- Step 3: Result is your break-even point (in units sold).
This amount is unique to every business. Once you’ve reached your break-even point, you will know your business is financially viable.
What are my financing options as a business owner?
How you choose to finance your business depends on your startup’s needs and its current financial situation. A few of the most popular business financing options include:
- Equipment financing, or loans used to purchase business equipment
- Invoice financing, or factoring, which supplies instant payment for outstanding client invoices through a third-party vendor
- Business line of credit, a limited cash supply available to borrow against, which functions similarly to a credit card
- Loans, like short-term loans, term loans, and SBA loans
- Angel investors, or individuals who provide capital in exchange for ownership equity or convertible debt
- Venture capital, or private equity provided to startups with high projected growth
How can I prepare for tax season?
When tax season arrives, you’ll want to be as prepared as possible. To make this easier, throughout the year, you should keep running tabs on business expenses you might claim on your tax return. For instance, if you’re running your business from home, you can claim deductions, like home-related expenses and repairs relating to your business. You should also keep all of your financial statements up to date to make filing taxes easier.
Your business’s finances are crucial to its success, and as a business owner, it is up to you to educate yourself on the accounting process. For more tips on small business accounting, visit our guide.
CO— does not review or recommend products or services. For more information on choosing the best accounting software, visit our friends at business.com.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.