From A to Z Examining the Best Accounting Playbook for 2021 Businesses

No doubts accounting is a major pain point all small business owners have to deal with. For it is the only language through which you can understand and communicate effectively with your business.
small business owner in front of a food truck
Source: Plus Accounting
By | 10 min read

As a small business owner, you need to wear several hats, from hiring the right teammate, looking for and maintaining relationships with customers. On top of all, you need to keep neat track of your profits and business accounting – a back bone that keeps your operation in line.

What Are Some Accounting Problems Small Business Are Facing?

Starting a business, obviously you have no passion for accounting, but keeping your books organized is crucial, especially to small business. It is a language of financial growth, through which you get to know If the business is dying out or still living healthily – It is how your business communicates and tells what it needs.

Generally, accounting includes recording, summarizing, and analyzing the financial transactions of a business. Even though each business model has its own issues, yet there are a few common accounting challenges most entrepreneurs must deal with.

Especially, for the first timers, its might be hard for you to notice because accounting are usually underlying problems which would not bother you for now, but later the damage would be beyond calculation.

#1 Cash Flow

It is quite a challenge for small businesses and startups to managing cash flow effectively. A whopping 82% of businesses that failed to do so because of cash flow problems, according to many U.S banks. Small business owners find it difficult to allocate funds to cover costs and keep the business alive. In general, poor understanding of cash flow and cash flow management contribute to business’s failure.

It is important to be through in chasing payments from customers and analyze your bills carefully, beside other matters that are the two foremost aspect small business owner should take care of effectively.

Because loosing track of receivables could put you in the position of having a great deal of potential revenue but little actual money coming in. Without a neat plan to monitor which of your clients still owes you money and all the invoices at once, you are running the risk of losing income from aging accounts. And worst, this disruption in cash flow can force you to have to take out a loan to cover expenses or cause your business to grind to a halt.

#2 Unforeseen Expenses

Particularly, when your business is growing there are some of the most common unforeseen costs you would face in future days. These are two regions you should considers.

First, location and energy costs. Does your lease period match the potential growth of your small business? Included in your lease will there be utility and maintenance costs?

Second, professional service fees, like attorneys, accountants, and extra employees. Do the math and make sure you can cover that significant cost that comes with each additional staff, all the math before you hire.

Small business owner in a tour with legislators
Source: Croydon Dems

In brief, even smaller expenses, such as a rise in the cost of goods, can cause major changes to the bottom line. Try optimizing your existing credit to manage your small-term expenses, but also monitor your long-term profitability to ensure that cost changes do not threaten your overall liquidity.

Even the smallest expenses and transactions, you must record and categorize everything to get the most accurate picture of your business’s finances. It is key to perform an audit of your accounts and books as well as run regular reports, on a monthly basis. The better your oversight and your bookkeeping system are, the easier it will be to spot errors or areas that is potential for growing. Only with accurate and detailed accounting can get you a clear and reliable picture of your business’s health.

Fortunately, there are many accounting software options on the market that can help you go paperless, you do not have to store all paper receipts in a filing cabinet or box and take tons of time to process. However, very program is different to benefit varied business model, so do your research to find the one that best suits your business’s needs.

#3 Taxes

Every U.S. business has to pay taxes but taking advantage of deductions can reduce your bill come Tax Day, therefore, knowing how to take advantage of deductions and reduce your bill is a must-have skill.

For example, if your business is home-based, then home office deductions are ideal for running your profits. As the National Federation of Independent Business explains, Section 179 of the tax code allows you to instantly deduct the cost of business property depreciation. For which reason, you can reinvest into your company with that investment cost.

Another note on taxes, maintaining an incomplete or messy book do not provide an accurate record of the business expenses which you claim on your annual tax return, could mean losing out on many deductions and paying much more than you have to. The government is not going to look through and point out where you could have done better, so it is all founders’ responsibility to log expenses and list them clearly at tax time. Remember to separate personal and business transactions, and hold on to receipts to validate your purchases 

#4 Payroll Managing

Staff costs can be considered to be the most expensive cost for businesses. For which reason, managing payroll effectively to ensure payments are made correctly is crucial in order to maintain productivity.

It is difficult for small business owner to play the role if an HR or payroll expert. There will be costly penalties to commit if you do not know how to classify your new employees properly.

According to a latest Ernst & Young survey, 85% of the businesses polled claimed there is room for their payroll process to improve. The most common problems were related to organizational inconsistency, including incorrect tax filing, overdue and under-due payments, incompatible software, employee absence tracking, compliance issues, and administrative burden. Take note of those and design your own size payroll procedure!

#5 Reconciling Your Books

Businesses tends to reconcile their accounts only once a year when they are preparing for their tax return. But books are best reconciled at least once a month, obviously for some reasons like catching banking mistakes, finding fraud in your business, finding forgotten transactions, and spotting runaway spending.

Why it is critical to verify all your business transactions on a monthly basis, if not weekly or daily? Because it is really easy to make mistake that can lead to incorrect calculations, misleading data analyses, and even IRS audits. Hence, as much as checking the business’s social media, you may want to make it a habit to run through your accounting books at the end of each day while the transactions are still fresh in your mind.

#6 Analyzing Your Finances

Financial statements or reports present a standardized overview of a business’s financial position for a specific period of time. It answers many questions for your business, does not matter the size.

It helps calculate how much should you charge? Does your prices of services and goods could reach an adequate profit margin? Should you stock more resources? Or cut back on supply. The impact of these data on revenue is key and it should be done properly.

Making a sound financial decision takes three steps: interpreting, analyzing, and advising. Regardless of the reports you use, generating the numbers is only the first stage. What do those numbers actually mean? More importantly, how do you improve them? You must interpret and analyze these numbers to lead yourself to the best advice and decisions. By doing this, you can enhance your financial position in the market and find the loopholes that are affecting your business growth.

#7 Embracing Technology

When it comes to small business, Excel spreadsheets may be an old way for accounting, yet it still equipped enough tools to solve most business’s math. Then why not?

Besides, cloud accounting software is also a good choice if you are seeing these number are getting out of hands. These programs can streamline your business processes and help you identify growth drivers, save time on recording and reconciling transactions, with access to plenty services from sales tracking, budget planning, to inventory management, tax management.

Just because a number of features and functions in accounting software seem daunting to exploit for small business owners, does not mean they should be overlooked. By learning the software and training your staff on it, it would be a lot to benefit from.

Here are the 2021 top accounting programs, for business at all size you could consider.

Xero demonstrate product
Source: Xero
NameKnown forFeatures
Xero      Best overallPlans starting at $11/ monthUnlimited users with every plan  
Fresh BooksBest invoicingUnlimited customized invoicing, $15/monthTime and expense tracking
Quick BooksMost user-friendlyComprehensive features, $25/monthExcellent financial reporting
WaveMost affordableFree accounting softwareAffordable payroll integration
Zoho BooksBest automationSolid inventory management, $9/monthHelpful workflow automation

Do-It-Yourself Accounting Yes or No?

If you are running business of a staff or two, and all the transactions are not too much to handle on the period of one day, then you are good to go – learn accounting procedure and work it out by yourself.

But if there are many more part on the business that still in need of your concern, then DIY accounting would not much of a good idea for it can leave you a lot of trouble.

Business owner may be an expert in creating a certain product or providing a service, but not in bookkeeping. Even if you can balance your books, it is easy to make mistakes when you do not leave it to the professionals. That could lead to a loss of profits if invoices go unpaid; you could run into cash flow problems, or you could end up overpaying in taxes.

Hiring an in-house accountant can be costly, but it is important to get a qualified professional on board at an early stage. If you are a small business owner or startup facing these or other accounting challenges, outsourcing your finance and accounting needs can be a viable, affordable way to deal with those issues faster so you can get back to focusing on what you do best.

Does Your Business in Need of an Accountant or a Bookkeeper?

Hiring a skilled bookkeeper or outsourcing accounting to a professional will ensure your books are up to date and accurate, representing the true state of your business. A second pair of eyes on your books will reduce the likelihood of mistakes and help you identify opportunities to cut costs and grow. It will also save you time that you can spend on growing your enterprise.

But there are differences between bookkeeper and accountant that you should take note for the best use!

a workshop for accountants
Source: Quickbooks

A bookkeeper helps manage records of your day-to-day financial transactions, such as recording income and expenses. They help handle company’s payroll and invoicing.

Meanwhile, accountants prepare your business’s tax returns and provides a big picture perspective on the business finances. They help prepare and review your company’s financial statements. In general, an account can be a bookkeeper but not vice versa without proper certification.

To know whether you need a financial professional, assess the current financial position of your business, compare that to how you want your business to grow financially, and decide if you can manage that on your own.

On the market, some do their own bookkeeping on software their accountant recommends, providing it to the accountant on basis. Other employs a bookkeeper or have a small accounting department with data entry staffs reporting to the bookkeeper.

When looking for a certified bookkeeper, you must first decide if you want to hire an independent consultant, a firm, or, if your business is large enough, a full-time employee. You can ask for referrals from friends or colleagues, your local chamber of commerce, or search online social networks like LinkedIn to find bookkeepers. You can also look at the American Institute of Certified Public Accountants to find CPAs that have skills in certain areas, such as employee benefits or personal finance.

How to Know When to Hire a Financial Professional?

It can be tricky to grasp the appropriate time to hire an accounting professional or bookkeeper, but If you are facing these three scenarios then you know it is time.

#1 You Have Complex Taxes

When taxes have become too complicated to handle on your own, with multiple income streams, foreign investments, several deductions, or other considerations, it is time to consider an accountant. One that could save hours of time and help you stay on top of important matters like payroll, tax fillings and tax deductions.

#2 You Have to Make More Time on Accounting Tasks Instead for Growing Business 

You are doing an ill turn to your enterprise, if your time spent on accounting tasks are more than time you should spent on growing business and satisfying customers. In long term, you may be able to make money if you leave the accounting to experts and focus on growth prospects.

#3 Your Business Is Experiencing Growth

Early-stage business is good for do-it-yourself accounting but when if you are seeing growth mode then it may be a sign that it is time to bring in someone to help. If you cannot yet afford a fulltime accountant, you could start by contracting with a bookkeeper who balances the books once a month and a CPA who helps with your taxes.

What Many Businesses Ask While Doing Tax with the EFTPS?

Up to 2021, there are several ways small businesses could do their IRS payment, but the Electronic Federal Tax Payment System (EFTPS) is considered the most used amongst businesses. Let us walk through some insights that would help your business on tax time.

How does it work? Access the IRS EFTPS website, provide identity and bank information, it is going to take about a week for a PIN to arrive in the mail, set a password, go back online, and authorize an ACH transaction from your bank account.

This is a free service provided by the U.S. Treasury that can be used to pay federal taxes due to the IRS. About the pluses, this method can be done online or via phone 24/4, ultimate security by the government system, it also can schedule payments up to a year in advance. Same-day payments is also available, along with changes or cancelation on scheduled IRS payment until two days before the payment date.

However, a minus point of this method is that it can take longer to set up than Direct Pay. Besides, your bank may charge a fee if you have it initiate the payment for you (rather than scheduling the payment on the EFTPS website by yourself).

Does EFTPS Password Expire?

Yes. Since 2019, the IRS implementing many new requirements for EFTPS internet passwords, including: A 13-month expiration policy will be applied, which means passwords expire after 13 months from the time they were changed.

EFTPS Related Scams You Should Notice?

Around Jun 2020, the IRS just updated its announcement on e-mail scams about the EFTP. Saying consumers should be aware of a scam e-mail about an electronic federal tax payment, these e-mails say that your tax payments through EFTPS have been rejected and direct you to a fake link for a transaction report with software that would infect your computer. The IRS and the Financial Management Service who own EFTPS do not communicate payment information through e-mail. So, be aware while you about to click, open attachment or reply because it is probably an identity theft.

Reasons to Use EFTPS vs. Direct Pay?

For the first timer we might be familiar with Direct Pay for your regular tax duty. However, there is one big difference between EFTPS, and Direct Pay is that the latter is limited to taxes owned by individuals like estimated taxes or income taxes, while the former can be used to pay any type of federal tax. In brief, Direct Pay cannot be used for business tax payments.

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