Small Business Accounting Basics To Get You up and Running

Starting up a small business of any kind is challenging. But starting up a small business in this Covid landscape we find ourselves in—the “new norm”—presents even bigger challenges.

As full-service accountants on the Gold Coast and Tweed Heads, we at Grow Advisory Group have all the tools and knowledge to help small businesses like yours get off the ground running. We’re all about supporting local businesses, so sharing some small business accounting basics with you only makes sense.

Whether you are a small business accountant, business owner, or seeking an accountant for your small business, understanding these accounting basics will prepare you for future challenges.

Continue reading as we discuss the fundamentals of small business accounting, including bookkeeping, invoicing, accounting, payroll, and cloud accounting.

Budgeting for Small Business

The most critical element to the success of any small business is a budget. Having a budget allows you to set business goals and objectives, formulate successful business decisions, and get finance and investors. It enables you to stay on track to avoid any nasty accounting blowouts.

Budgeting Basics

Setting a time frame and calculating all fixed expenses like rent, salaries, and insurance, as well as variable costs like utilities, materials, and wages, are crucial steps in creating a budget. Additionally, it necessitates the inclusion of an emergency fund and the establishment of a projected income, both of which should be carefully considered. Be conservative with your revenue forecast; it’s better to budget based on a smaller predicted income vs. a fluctuated income you may never reach.

Once you have formulated your budget, you need to monitor your finances to track how you’re travelling, comparing accurate figures with your estimated amounts, which is where bookkeeping comes into play.

Bookkeeping for Small Businesses

Bookkeeping is an essential element of small business accounting. It’s the initial step in the accounting process that ensures everything is in order.

Small businesses must track their budgets and other financial matters like expenses through bookkeeping. Not only will it allow you to use your budget to look for ways to cut costs and avoid overspending, but bookkeeping can also help you look for ways to reduce debt, create a financial safety net, and grow your business.

Bookkeeping will hold you accountable for your finances. You’ll know if you’re spending more than you’re making and always have accurate and reliable figures on hand.

Having records of all financial transactions is vital for submitting an accurate tax return and for attracting future investors.

Read our blog post, ‘The Benefits of Bookkeeping Services for Small Business Owners‘, to discover further benefits.

Bookkeeping Basics

The first step to bookkeeping for small business accounting is to set up business accounts to record transactions. This can be done via a spreadsheet, desktop accounting software, or cloud-based accounting software. Accounts in bookkeeping refer to a record of all financial transactions of a particular type, not a business bank account (although that is also required). So, business account examples would be Accounts Payable and Interest Payable (Liability), Accounts Receivable, Cash, Equipment, and Inventory (Asset), Dividends and Owner’s Capital (Equity), Rent expense, Supplies expense, and Utility expense (Expense), and Sales income and Rental income (Revenue). There are many more to consider.

Next, decide on a bookkeeping method, either single-entry bookkeeping or double-entry bookkeeping. Single-entry bookkeeping records a single entry for every transaction. On the other hand, double-entry bookkeeping records two entries for every transaction: a debit and a credit. Although more complicated than single-entry bookkeeping, this method balances your books, making it more popular.

You can now start bookkeeping, which begins by correctly recording every financial transaction for your business, making sure the transaction is recorded in the correct business account (Liability, Asset, Equity, Equity, Expense or Revenue). Identify the accounts to debit and credit, then proceed to add the journal entry.

The last step is to balance the books, which should be reasonably straightforward if you record transactions correctly. Tally up the account debits and credits, and the totals should match. If they don’t, you’ll need to go back through your journal entries to locate errors and start over.

Accounting for Small Businesses

Small business accounting is an unavoidable task. While you can take it on yourself, most small business owners only take on the bookkeeping duties and hire a small business accountant like Grow Advisory Group to manage the more complex accounting tasks.

Accounting picks up where bookkeeping left off, handling such items as preparing and lodging BAS, bank reconciliations, depreciation, analysing financial transactions, and financial statements. Bookkeeping and small business accounting tasks can also overlap. Small business accounting can include the process of recording journal entries, maintaining the general ledger, unadjusting and adjusting trial balances, and adjusting entries, which are all typical bookkeeping duties. Therefore, before hiring a small business accountant, you must clearly state your responsibilities and where they will come from to avoid double handling.

For free accounting tips for your small business, read our post, 10 Accounting Tips Every Small Business Owner Needs to Know.

Accounting Basics

The fundamental step of accounting for small businesses involves the bookkeeping duties mentioned above, which include maintaining records of all financial transactions.

Bookkeeping allows you to create accounting reports to help manage the business. Standard accounting reports include balance sheets, income statements, cash flow statements, and statements of shareholders’ equity. These reports can give you the insight you need to make strategic business decisions for the direction and growth of your business.

The final area of small business accounting lies in BAS and taxes—preparing and lodging your BAS and filing business tax returns, including income tax, GST, and employee-related taxes.

The benefit of hiring a professional to manage your small business accounting is the added financial and business advice they offer and, of course, ensuring you manage your tax correctly.

Payroll for Small Businesses

Another essential element of small business accounting is payroll. Payroll guarantees timely payments to your employees and accurately deducts tax, superannuation, and child support from their pay.

Compliance and regulations heavily govern payroll, requiring strict adherence to prevent non-compliance and fines. Such laws include making correct payments and deductions, providing employees with a payslip, lodging and paying taxes on time, paying deductions such as superannuation, and keeping payroll records for 7 years.’

Small business payroll is usually not too complex due to the smaller number of staff. However, it can become more complicated if you have a mix of staff on wages, salaries, commissions, contract workers, etc.

Payroll Basics

The first step is to decide how you want to manage your payroll. There are various options, including a spreadsheet, desktop or cloud-based accounting software, or professional bookkeepers and accountants.

If you manage your own payroll, you must register for Pay As You Go (PAYG), which you can do on the Australian Taxation Office (ATO) website. Next, you must verify your employee’s details, such as their Tax File Number (TFN) and the bank account they wish to receive their pay, and reconcile your bank accounts to make sure the funds leaving your account correspond to the actual funds spent.

Setting up Single Touch Payroll (STP) is the next step. This mandatory process allows small businesses to report their payroll information after each payday and can be done through STP-enabled software such as Xero, MYOB or Quickbooks. You can then reconcile your PAYG withholdings with the PAYG you have paid or will be paying in the future.

Grow Advisory Group is one of the Gold Coast’s best Xero bookkeepers and advisors for small businesses. We can help you set up payroll, reconcile your bank accounts, and ensure compliance with the ATO. If you want more information about small business payroll, contact us today.

Cloud-Based Accounting for Small Businesses

As a small business owner, your time is precious, which is why cloud-based accounting software is so popular today. Business owners rarely rely on spreadsheets for their small business accounting due to the increased risk of human error, lack of time efficiency, and inability to produce essential financial reports necessary for making informed decisions and filing taxes.

If you look at the items above, each relies on cloud-based accounting software in some way to help complete the process. Whether it’s financial reporting, STP, or otherwise, investing in cloud-based accounting software will help streamline the process so you can reduce the time you spend doing the books to spend more time running your business.

Cloud-Based Accounting Basics

There are several cloud-based accounting software options on the market today, with the top four being QuickBooks, MYOB, Xero, Reckon, and Sage. I wrote a detailed review of each of these options in a post titled ‘Which Accounting Software Is Best for Small Business?’, which I strongly recommend you read.

Xero, MYOB, QuickBooks, and Sage are similar in features and pricing. However, we at Grow Advisory Group find Xero the superior choice for small businesses. Xero is the easiest to set up and use, and it’s also the easiest to integrate with third-party apps. If you’re after the bare minimum, Reckon One may be a viable option; however, it is not as user-friendly.

Ultimately, what cloud-based accounting software you choose depends on the features you need for your business. If you’re unsure which accounting software is best for you, read our handy articles, ‘How to Choose the Right Accounting Software for Your Business‘ and ‘9 Reasons Why Xero Is the Best Accounting Software for Small Businesses‘.

Disclaimer: The information contained in this blog is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from an accountant and/or financial adviser.