If you’ve launched your online business for the first time, you should be proud of yourself. It takes a lot of perseverance and passion to become a business owner. But you’re also no doubt aware of how much you need to keep track of. Business accounting is a vital field of knowledge. When you launch, you need to be prepared to keep the accounting records associated with store ownership.
Fortunately, there are a few simple things you can do to make sure you’re on top of your accounting.
7 Ways to Keep Your Accounting Clear
1. Open a bank account for your business.
After the business has been legally registered, the income needs to go somewhere. You might be tempted to keep all your money in one spot, especially if you have a sole proprietorship. But a separate bank account is a good idea for a few reasons. First, the banking records will make life much easier when taxes are due. Second, you won’t get your personal money mixed up in your business expenses, which makes budgeting easier.
If your business is anything except a sole proprietorship, you have a legal responsibility to get a distinct bank account. Only sole proprietors can avoid opening a business bank account, but they don’t want to.
2. Track every expense.
You probably have a budget for your day-to-day life. You keep track of your expenses to determine how much you can spend and save. Businesses need to operate by the same principles. It’s vital that you engage in effective expense tracking.
Expense tracking matters for more than simple budgets. You can also use the numbers to monitor business growth, track tax-deductible expenses, build overall financial statements, and prepare tax returns. You’ll need the documentation to explain your tax return reporting.
3. Get a system for bookkeeping.
Bookkeeping and accounting are two separate, but intrinsically linked fields. Bookkeeping involves recording daily transactions, reconciling banking statements, and categorizing financial information. Accounting tends to use numbers data to make big-picture decisions, while bookkeeping keeps track of the day-to-day minutiae.
You can’t compile accurate accounting without accurate bookkeeping. There are a few options you have for bookkeeping methods. You might use simple spreadsheets found in Excel. You may also hire a bookkeeper full time or part time, should you have the budget. If your business grows enough, you can employ an in-house accountant and bookkeeper.
4. Make payroll systematic.
Yes, payroll is important, even if you’re a sole proprietor. It becomes a thousand times more important if you hire any employees, from part-time workers to full-time in-house employees. If you contract any freelancers or outside companies to help with your business, you’ll also need a system for invoicing.
When dealing with employees, a payroll schedule is essential. You also need to make sure the right tax amounts are being withheld. With independent contractors, track the amount that each person is being paid. The contractor will usually take care of the documentation explaining how much they’re owed.
5. Make decisions about your own payment.
You’ve probably sacrificed a lot for this business. You need to decide how you’re going to get paid for your work. When the business is a success, you can begin taking payments. Online store owners have a number of different methods for accepting payment. Using pre-programmed tools that allow for credit card usage can help. Another common option is Paypal.
6. Codify your procedures for sales tax.
If you’re operating online, sales tax regulations may be complicated. Retail stores pay the sales tax of whichever area they’re located in. But online sales involve many customers in many different locations.
Different states handle online sales tax differently. You’ll need to look up your state’s procedures. Make a plan to charge sales tax accordingly, and make sure you withhold the tax to be paid quarterly.
7. Calculate your gross margins.
Your first step toward more income is an improvement of your gross margins. Gross margin is calculated using the costs of product production. Your gross margin is the amount of sales revenue you generate after you’ve paid your expenses.
If you can pull in more revenue for lower direct production costs, you’ll have a successful business.