Accounting - Vyde

Balancing the Books: Ecommerce Accounting Best Practices

In the fast-paced world of ecommerce accounting is the backbone that ensures businesses thrive financially. This comprehensive guide delves into the best practices for managing ecommerce finances, from balancing the books to optimizing cash flow and ensuring compliance with tax regulations.

Ecommerce Accounting Basics

Understanding Ecommerce Accounting

Ecommerce accounting is the systematic recording, tracking, and managing of financial transactions related to an online business. Whether you are a seasoned ecommerce entrepreneur or just starting, implementing sound accounting practices is crucial for sustained success.

Importance of Financial Reports

Financial reports such as the profit and loss statement, cash flow statement, and balance sheets are essential tools for understanding your business’s financial health. Regularly analyzing these reports provides insights into your revenue, expenses, and overall profitability.

What Things Do You Need to Start Ecommerce Accounting?

Business Tax ID Number: If you operate as a partnership or corporation, securing an Employer Identification Number (EIN) from the IRS is imperative. This distinctive nine-digit identifier is utilized in tax documentation, for opening business bank accounts, hiring employees, establishing credit, obtaining permits, and various other purposes. Conversely, if you function as a sole proprietor, you have the option to use your Social Security Number (SSN).

Business Bank Account: A common pitfall for new businesses is mingling personal and business finances. While it might be tempting to utilize an existing account, the complications in untangling finances later make it an ill-advised decision. Instead, it is advisable to establish a dedicated business account. Platforms like PayPal for Business or Shopify Balance offer swift setup options, ensuring separation of personal and business financial matters.

Accounting Software: While Excel or Google Sheets may suffice in the initial stages, the growth of your online business warrants the use of accounting software for efficient tracking of sales, expenses, inventory, and taxes. Notable choices among small businesses and experts include Xero and QuickBooks, both popular cloud accounting solutions. Enhance your tech stack by considering the incorporation of accounting automation apps like A2X, which streamlines transaction summarization, saving time and effort by sitting between your sales channel and accounting software.

Ecommerce Accounting Methods: Cash, Accrual, and Modified Cash

Ecommerce businesses, like other businesses, employ different accounting methods to record and report financial transactions. The three primary ecommerce accounting methods are cash accounting, accrual accounting, and modified cash accounting. Each method has distinct characteristics and implications for how revenue and expenses are recognized.

Cash Accounting

In cash accounting, transactions are recorded when cash is exchanged. This means revenue is recognized when payment is received, and expenses are recorded when payments are made. It provides a straightforward view of the actual cash flow at any given time. Cash accounting is suitable for small businesses with simple financial structures, offering simplicity and ease of use.

Accrual Accounting

Accrual accounting, on the other hand, recognizes revenue and expenses when they are incurred, regardless of when the cash is received or paid. This method provides a more comprehensive picture of the business’s financial performance over a specific period. Ecommerce businesses with a larger scale and complex operations often prefer accrual accounting for its ability to match revenues and expenses more accurately, providing insights into the business’s overall profitability.

Modified Cash Accounting

Modified cash accounting is a hybrid approach that combines elements of both cash and accrual accounting. It allows businesses to record certain transactions on a cash basis while using accrual accounting for others. For example, a business might use cash accounting for day-to-day operations but switch to accrual accounting for large purchases or long-term investments. This method offers flexibility and can be tailored to the specific needs of the ecommerce business.

Considerations for Ecommerce Businesses:

Size and Complexity: Small ecommerce businesses with straightforward operations may find cash accounting sufficient, while larger businesses with complex structures might benefit from accrual accounting to capture a more accurate financial picture.

Cash Flow Management: Cash accounting is beneficial for businesses that want a real-time view of their cash flow. Accrual accounting, on the other hand, provides a more holistic understanding of financial performance but may not reflect immediate cash availability.

Compliance and Reporting: The choice of accounting method can also be influenced by regulatory requirements and reporting standards. Accrual accounting is often required for businesses with higher revenue thresholds. Decision-Making Needs: Businesses focused on strategic planning and decision-making may prefer accrual accounting for its ability to provide a comprehensive view of financial performance, aiding in long-term business planning.

Essential Accounting Tasks for Ecommerce Businesses

Streamlining Bookkeeping Tasks

Streamlining bookkeeping tasks involves optimizing and simplifying the various processes related to financial record-keeping, transactions, and reporting. The goal is to enhance efficiency, accuracy, and overall effectiveness in managing a company’s financial data.

For an ecommerce business, this process includes organizing and automating bookkeeping workflows to ensure seamless tracking of sales, expenses, and other financial transactions. It also involves adopting tools and technologies that simplify data entry, categorization, and reconciliation.

Why is Streamlining Bookkeeping Tasks Important in Ecommerce Business?

Real-Time Financial Insights

Ecommerce businesses often operate in a high-volume, real-time sales environment. Streamlining bookkeeping tasks allows for the immediate recording and updating of financial transactions. This provides business owners with real-time insights into their cash flow, sales, and expenses.

Accuracy and Error Reduction

Automation of routine bookkeeping tasks minimizes the risk of human error. Automated systems can accurately categorize transactions, reducing the chances of discrepancies in financial records. This accuracy is particularly crucial when dealing with a large volume of transactions common in ecommerce.

Time and Resource Efficiency

Manual bookkeeping tasks can be time-consuming and resource-intensive. By streamlining these processes through automation and efficient workflows, businesses can save valuable time and allocate resources to more strategic activities, such as business growth and customer engagement.

Better Decision-Making

Access to up-to-date and accurate financial information empowers ecommerce business owners to make informed decisions. Streamlined bookkeeping ensures that key performance indicators (KPIs) are readily available, aiding in strategic planning and helping the business stay agile in a competitive market.

Compliance and Audit Readiness

Ecommerce businesses are subject to various tax regulations and reporting requirements. Streamlining bookkeeping tasks ensures that financial records are well-organized and readily available for compliance purposes. This not only helps in meeting regulatory obligations but also makes the auditing process smoother.

Scalability

As ecommerce businesses grow, the volume and complexity of financial transactions increase. Streamlined bookkeeping processes are scalable, adapting to the evolving needs of the business without causing disruptions. This scalability is essential for accommodating growth without compromising on the accuracy and efficiency of financial management.

Enhanced Customer Trust

Transparent and accurate financial records instill trust among customers and stakeholders. In ecommerce, where customer trust is paramount, a well-maintained and streamlined bookkeeping system contributes to the credibility of the business.

Cost Savings

While there might be an initial investment in implementing streamlined bookkeeping processes, the long-term cost savings are substantial. Efficiency gains, reduced errors, and optimized resource allocation contribute to overall cost-effectiveness.

Ecommerce Tax Management

Ecommerce businesses often operate in multiple sales channels. Efficiently managing taxes across various sales channels requires a meticulous approach to ensure compliance and prevent financial pitfalls.

Sales Tax Compliance

Ensure adherence to sales tax regulations across multiple jurisdictions. This involves calculating, collecting, and remitting the correct sales tax amounts to relevant authorities.

Business Tax ID Number

Obtain a unique business tax identification number for accurate income reporting and tax return filing, aiding tax authorities in tracking and managing the business’s obligations.

Income Tax Planning

Strategize to minimize overall tax liability through effective income tax planning. This includes optimizing deductions, credits, and exemptions while structuring the business for optimal tax positioning.

Estimated Quarterly Business Taxes

Make timely quarterly tax payments based on expected annual income to cover income tax liabilities. Accurate estimation is crucial to avoid underpayment penalties.

Sales Tax Calculation

Ensure accurate sales tax calculations by staying updated on tax rate changes, understanding product taxability, and integrating precise calculations into online sales processes.

Tax Reporting and Filings

File regular tax reports, including income and sales tax returns, to maintain good standing with tax authorities. Timely and accurate reporting is essential to avoid penalties.

International Tax Considerations

Navigate international tax laws for global ecommerce operations. Understand cross-border tax implications such as VAT or GST, ensuring compliance with each country’s tax regulations.

Technology Integration

Leverage technology, including specialized accounting software and tools, for efficient tax management. Automation aids in accurate tax calculations, tracking legal changes, and streamlining overall tax compliance.

Audit Preparedness

Maintain meticulous records of financial transactions, tax filings, and supporting documentation to be well-prepared for potential tax audits. This ensures effective responses to audit requests.

Generating Regular Financial Reports

Generating regular financial reports in ecommerce is essential for various reasons. Firstly, these reports aid in performance monitoring of an ecommerce business by allowing business owners to assess trends, patterns, and areas that may require attention over time. Additionally, financial reports play a crucial role in budgeting and planning, providing essential data for analyzing revenue, expenses, and cash flow trends, enabling businesses to create realistic budgets and allocate resources strategically.

The insight gained from regular financial reports is instrumental in cash flow management, profitability analysis, and identifying cost trends, contributing to the overall financial health and efficiency of ecommerce operations.

Moreover, these reports instill investor and stakeholder confidence by offering a transparent view of the business’s financial performance, reducing risks associated with financial uncertainty. Compliance with regulations is ensured through the organized and up-to-date nature of regularly generated financial reports, reducing the risk of penalties during audits.

Furthermore, financial reports empower strategic decision-making in the dynamic ecommerce landscape, providing valuable data for expanding product lines, entering new markets, and adjusting marketing strategies. Lastly, the reports serve as a tool for detecting anomalies or issues and investigating variances, allowing for swift corrective action and preventing financial discrepancies from escalating into more significant problems.

Frequently Asked Questions (FAQs)

How does ecommerce accounting differ from traditional accounting?

Ecommerce accounting involves unique considerations such as sales tax compliance, multiple sales channels, and intricate inventory management, setting it apart from traditional accounting.

What accounting method is best for ecommerce businesses?

Choosing between cash basis accounting and accrual accounting depends on your business’s size, complexity, and financial goals. Consult with an accountant to determine the most suitable method for your ecommerce venture.

How can ecommerce businesses optimize cash flow?

Optimizing cash flow involves managing receivables and payables effectively, negotiating favorable payment terms, and maintaining a buffer for unforeseen expenses. Regularly updating and analyzing cash flow statements is crucial for success.

Expert Tips on How to Find Good Accountant

Finding a good accountant can be the linchpin for maintaining the financial health of your personal finances or business. An accountant does more than just crunch numbers; they can provide strategic advice, help you minimize taxes, and improve your cash flow. In this comprehensive guide, we’ll explore expert tips on how to find good accountant who can be a trusted advisor for your financial journey.

Understanding the Importance of a Good Accountant

Before we dive into how to find a good accountant, let’s understand why it’s crucial to have one.

Why You Need a Good Accountant?

1. Expertise in Tax Preparation: One of the primary roles of a good accountant is their expertise as a tax preparer. They are well-versed in tax and regulations, enabling them to accurately prepare your tax returns. This expertise ensures that you comply with it while maximizing your deductions and minimizing your tax liability.

2. Tax Preparer Tax Identification Number (PTIN): A good accountant will have a PTIN, which is a requirement by the IRS for anyone who prepares federal tax returns for compensation. This number signifies that they are qualified and authorized to assist you with your tax needs, giving you peace of mind in knowing that your taxes are in capable hands.

3. Complex Tax Situations: Certified Public Accountants (CPAs) are qualified tax professionals who can navigate complex tax situations. If you have a business, investments, or other intricate financial matters, a CPA’s expertise is invaluable in ensuring your tax returns are accurate and compliant with the law.

4. Year-Round Support: Tax professionals, including CPAs, offer year-round support. They can advise you on tax planning, help you make strategic financial decisions, and guide you in optimizing your financial situation. This goes beyond just tax season; they provide ongoing financial guidance.

5. Minimizing Errors and Audits: A good accountant helps prevent errors on your tax return, reducing the likelihood of an audit. In the event of an audit, they can represent you and provide documentation to support your tax filings, ensuring a smoother process.

6. Time Savings: Tax preparation can be time-consuming and complex. Hiring a qualified tax professional frees up your time, allowing you to focus on your business or other important aspects of your life.

7. Peace of Mind: Knowing that your financial affairs are in the hands of a qualified accountant provides peace of mind. You can trust that they will keep your financial information secure and confidential while ensuring compliance with tax laws.

8. Maximizing Deductions: A good accountant is skilled at identifying deductions and credits you may have overlooked. They can help you legally maximize your tax benefits, which can lead to significant savings.

9. Business Growth: They can provide valuable insights that can help grow your business.

Where to Start Your Search

Referrals and Recommendations

The best place to start is often within your network. Ask business associates, friends, or family if they can recommend a good accountant. Personal referrals can often lead to trustworthy and reliable professionals.

Professional Associations

Look for accountants who are members of professional associations such as the American Institute of CPAs (AICPA) or the National Association of Tax Professionals (NATP). Membership in these organizations often indicates a level of commitment to the profession’s standards and ethics.

Evaluating Potential Tax Accountant

Credentials and Experience

Ensure that the accountant has the necessary credentials, such as being a Certified Public Accountant (CPA) or a Chartered Accountant (CA). Also, consider their experience in your industry and with businesses of your size.

Services Offered

Accountants offer a range of services. Determine if they provide what you need, such preparation, auditing, financial planning, or business advisory services.

Compatibility

It’s essential that you feel comfortable with your accountant. They should be someone you can trust and communicate with openly.

Interviewing Accountants

Questions to Ask:

When interviewing potential accountants, consider asking the following questions:

What experience do you have with businesses like mine?
How do you stay updated on accounting and tax law?
Can you provide references from clients?

Making Your Decision

Choosing the right accountant is a critical decision for any individual or business. The right professional can save you time and money, ensure compliance with tax laws, and provide valuable financial advice. Here’s a guide to help you select the right accountant:

Determine Your Needs

For Individuals: You may need an accountant for tax preparation, estate planning, or personal financial management.
For Businesses: The complexity of your business transactions, industry-specific needs, and the size of your business will determine the level of expertise required.

Look for Qualifications and Credentials

Certification: In many countries, accountants are certified (e.g., CPA in the USA, CA in the UK and Canada, ACA/ACCA in other countries).
Specializations: Some accountants specialize in tax, audit, business advisory, or forensic accounting.

Consider Their Experience

Industry Expertise: An accountant with experience in your industry will understand the specific challenges and regulatory requirements you face.
Business Size: An accountant who works with similar-sized businesses will be more familiar with your needs and concerns.

Assess Their Reputation

References: Ask for and check references from the accountant’s current or past clients.
Reviews: Look for reviews or testimonials online to gauge client satisfaction.

Evaluate Their Services

Full Service vs. Specialization: Some accountants or firms offer a full range of services, while others specialize in certain areas.
Technology and Software: Ensure they use up-to-date accounting software that is compatible with your systems.

Understand Their Fee Structure

Fee Arrangement: Accountants may charge hourly, a fixed fee per service, or a retainer for ongoing services.
Transparency: Ensure that the accountant is clear about their tax preparation fees to avoid unexpected costs.

Assess Their Availability

Response Time: Consider how quickly they respond to your inquiries.
Proactive Communication: A good business accountant should not only be reactive but also proactive in providing you with financial insights and alerts.

Personal Fit

Communication Style: Make sure their style of communication aligns with your preferences.
Trust and Comfort: You should feel comfortable discussing personal or confidential business information with them.

Check for Professionalism and Integrity

Ethics: They should adhere to a professional code of ethics and maintain integrity in their work.
Continuing Education: Accountants need to keep up with changes in laws and regulations, so look for those committed to ongoing education.

Consider Their Network

Additional Resources: An accountant with a broad professional network can refer you to other professionals, such as lawyers or financial advisors, as needed.

Look for a Strategic Advisor

Beyond Compliance: The right accountant should help you with strategic planning and offer advice to help grow your wealth or business.

Make Sure They Are Future-Oriented

Growth Mindset: Choose an accountant who can scale with you as your financial situation or business grows.

Final Steps

Interview: Meet with potential accountants to discuss your needs and expectations.
Decision: After meeting with several candidates, compare their qualifications, fees, and the rapport you felt with each to make an informed decision.

Maintaining the Relationship

Maintaining a strong relationship with a tax accountant is crucial for small business owners, as it can lead to better financial decision-making and tax compliance. Here are some key practices to maintain a healthy relationship with your tax accountant:

Open Communication: Keep the lines of communication open. Regularly update your accountant on changes in your business, such as new revenue streams, changes in business structure, or significant purchases. This helps them provide accurate advice and service.
Organized Records: Maintain organized financial records. Use accounting software to track your finances and share access with your accountant. This makes it easier for them to review your accounts and provide timely advice.
Understand Your Responsibilities: Know what you are responsible for and what your accountant will handle. This clear division of labor prevents tasks from being overlooked.
Regular Meetings: Schedule regular meetings, whether monthly, quarterly, or at least annually. This ensures you both stay informed about tax-related matters and can plan for the future.
Ask Questions: Don’t hesitate to ask questions. Understanding the tax implications of your business decisions is crucial, and a good accountant will be willing to explain these to you.
Timely Information Sharing: Provide all necessary information well before tax deadlines. This gives your accountant the time they need to work effectively and can prevent costly mistakes or fines.
Trust Their Expertise: Respect your accountant’s professional advice. They understand tax laws and can help you make decisions that minimize your tax liability legally.
Feedback: Provide feedback about what’s working well and what isn’t. This can help your accountant tailor their services to better fit your needs.
Stay Informed: While you don’t need to be a tax expert, having a basic understanding of tax matters can facilitate more productive conversations with your accountant.
Long-Term Relationship: View your relationship with your accountant as a long-term partnership. A tax accountant who is familiar with your business history can provide more nuanced and beneficial advice.
Referrals and Networking: If you’re happy with your accountant’s services, refer them to others. Accountants value client referrals, and this can strengthen your business relationship.
Professional Courtesy: Treat your accountant with the same level of professionalism and courtesy you expect in return. Mutual respect goes a long way in maintaining a positive working relationship.
Review and Plan: Use your accountant not just for tax filing but for financial review and business planning. They can often provide insights into improving profitability and managing cash flow.
Stay Compliant: Work with your accountant to ensure you remain compliant with all tax laws and regulations. This can prevent legal issues and fines.
Payment Timeliness: Pay your accountant’s fees promptly. Just as you appreciate being paid on time, so does your accountant.

Finding a good accountant is a critical step for your financial success. Take the time to do your due diligence, and you’ll find a financial ally who can save you time and money, and provide valuable advice for years to come.

Frequently Asked Questions

How often should I meet with my accountant?

It depends on your needs, but typically you should meet at least annually or quarterly.

Can a good accountant help with financial planning?

Yes, many accountants also offer financial planning services.

What if my business grows?

A good accountant should be able to scale their services to match the growth of your business.

Accounting Services for Construction Companies

Running a construction business involves much more than just overseeing projects; it requires diligent financial management and accurate accounting to ensure the company’s financial health and success. In the construction industry, where profit margins can be narrow, efficient construction accounting is essential. This article outlines eight crucial steps to help construction companies navigate the complexities of construction accounting effectively.

How Construction Accounting Differs

Accounting in the construction industry presents unique challenges compared to other businesses due to the intricacies of the field. These differences stem from the nature of construction work, specific revenue recognition methods, per-project pricing structures, job costing intricacies, fluctuating operating expenses, and various aspects inherent to construction projects.

Construction companies face a range of distinct requirements, necessitating the ability to meticulously track precise costs, competitively bid on projects, adhere to prevailing wage regulations, and manage a host of other accounting responsibilities. Here are the key distinctions that set construction accounting apart from other forms of accounting:

Project-Based

Construction enterprises operate on a project-by-project basis, often managing multiple projects simultaneously. Unlike businesses where payment typically aligns with the completion of a transaction, construction projects follow diverse payment schedules. Some may require upfront deposits, while others might entail full payment upon completion, or settlements that occur months after project finalization. Consequently, construction companies may find it necessary to generate individual profit and loss (P&L) statements for each project.

Diverse Services

In contrast to conventional businesses that usually offer a limited range of products or services, construction companies provide a wide spectrum of services. This can encompass service work, design services, consulting, engineering, material sourcing, and more. This diversity makes it challenging to track expenses accurately and calculate profits associated with each service category.

Fluctuating Overhead Costs

Construction firms experience fluctuating overhead expenses encompassing insurance, travel, workers’ compensation, materials, subcontractor fees, equipment, and various other factors. These costs must be meticulously considered in construction accounting, both at the project level and for the overall business.

Cost of Goods Sold

Unlike many businesses that primarily record the cost of products sold, construction companies have a more complex landscape. Each project incurs both direct and indirect costs that can fall into a wide array of categories. Consequently, contractors must employ effective methods for monitoring income and expenses while ensuring meticulous reconciliation of every financial transaction.

Long-Term Contracts

Construction companies often manage contracts with varying durations, including both short-term and long-term commitments. This diversity in contract timelines means that income may not arrive at consistent monthly intervals. To effectively manage cash flow and maintain accurate financial records, construction businesses require a flexible yet organized accounting system.

How to Do Construction Accounting

1. Understand Construction Accounting

Construction accounting is a specialized branch of accounting that caters to the unique financial needs of construction companies. It involves tracking construction project costs, managing revenue recognition, handling cash flow, and complying with industry-specific accounting methods and regulations.

2. Set Up Your Accounting System

To kickstart your construction accounting journey, you need a robust accounting system. This system should allow you to track business finances accurately. Key components include:

- Business Bank Account: Open a separate business bank account to keep your personal and business finances distinct.

- Accounting Software: Consider using construction accounting software tailored to the industry’s needs. Several options are available that can help streamline bookkeeping and financial management.

- Chart of Accounts: Develop a comprehensive chart of accounts that categorizes income, expenses, assets, and liabilities specific to construction.

3. Choose an Accounting Method

A construction company can use either the cash method or the accrual method for accounting. The cash method records transactions when money changes hands, while the accrual method records transactions when they are incurred, regardless of when the payment is received. Select the method that aligns with your business operations and financial goals.

4. Implement Job Costing

Job costing is a fundamental concept in construction accounting. It involves tracking all costs associated with individual construction projects. This includes material costs, labor costs, equipment costs, and overhead costs. Job costing enables you to monitor the profitability of each project and make informed decisions to protect your profit margins.

5. Recognize Revenue Accurately

The construction industry often uses two revenue recognition methods: the percentage of completion method and the completed contract method. The percentage of completion method recognizes revenue based on the project’s progress, while the completed contract method recognizes revenue only when the project is completed. Choose the method that best suits your business and complies with industry standards.

6. Track Project Expenses

Managing project expenses is critical for maintaining financial health. Keep a close eye on direct and indirect costs, such as labor costs, material costs, administrative costs, and mobilization costs. Accurate tracking of expenses allows you to monitor project profits and make necessary adjustments.

7. Monitor Cash Flow

Cash flow management is essential in construction accounting. Since construction projects often involve substantial upfront costs, it’s vital to ensure you have the necessary liquidity to cover expenses. Regularly review your cash flow statements to identify potential cash shortages and plan accordingly.

8. Stay Compliant

Construction companies must adhere to various regulations and prevailing wage requirements, which can vary by location. Stay informed about these requirements and ensure your accounting practices are compliant with industry and legal standards.

Construction accounting plays a pivotal role in the financial success of construction businesses. With accurate accounting, you can track project costs, manage cash flow, and make informed decisions to protect narrow profit margins. By understanding the unique challenges of construction accounting and implementing these eight essential steps, you can set your construction business on the path to financial stability and long-term success.

Tips for Managing Your Construction Accounting Processes

Here are some valuable steps to kickstart your construction accounting journey, ensuring that your bookkeeping and financial management stay on the right track:

1. Segregate Personal and Business Expenses

For construction firms, the initial crucial step is to establish a separate business bank account exclusively dedicated to your business finances. This separation streamlines financial management and organization. To initiate a business bank account, you will typically require a social security number or employer identification number (EIN), personal identification (such as a driver’s license or passport), a copy of your business license, and relevant organization documents filed with the state.

2. Break Down Project Costs with Job Costing

Given the project-centric nature of construction accounting, adopting a job costing system is essential. Job costing allows you to meticulously track, categorize, and report financial transactions for each project. This method ensures accurate accounting for profitability on a per-contract basis, helping you ensure that your service prices adequately cover all overhead expenses. Job costing involves calculating the cost of labor, materials, and overhead for each specific project, represented as Total Job Cost = Direct Materials + Direct Labor + Applied Overhead.

3. Record Day-to-Day Financial Transactions

Use various tools such as journals, spreadsheets, or construction accounting software to document daily transactions, encompassing accounts payable, accounts receivable, labor costs, and material expenses. Ensure that each transaction includes a description, transaction date, and revenue received. Utilizing construction invoice templates can simplify billing for clients and maintain a comprehensive paper trail of all construction projects and generated revenue.

4. Select Appropriate Revenue Recognition Methods

Revenue recognition in construction accounting differs from regular business accounting due to the industry’s nature. For companies handling long-term contracts, two primary revenue accounting methods exist:

- Completed Contract Method: Under this method, contract revenue recognition occurs upon project completion.

- Percentage of Completion Method: Revenue recognition is based on the percentage of project completion within the fiscal year, calculated by comparing incurred expenses allocated to the contract during the year to total estimated costs. Generally, construction businesses with gross receipts exceeding $10 million must use the percentage of completion method for tax purposes. Those with gross receipts below $10 million can apply the completed contract method for projects lasting less than two years but must use the percentage of completion method for longer projects. Generally accepted accounting principles recommend using the percentage of completion method for financial statements.

5. Track Business Expenses

Categorize expenses by service and individual job to facilitate tracking of both income and expenditure. Employ an expense tracker and keep receipts to monitor expenses and project profits for each job. Common construction industry expenses encompass

business registration and licensing,
bank fees,
tools and equipment,
travel expenses (including fuel),
electronics,
trade school tuition,
vehicle maintenance,
phone and internet costs,
lodging,
software subscriptions,
membership fees (unions and associations),
mileage (for tax purposes),
insurance, lease payments,
safety equipment and uniforms,
subcontractors,
employee payroll,
advertising, and marketing.

6. Reconcile Bank and Supplier Statements

Regularly reconcile bank statements with your own accounting records, invoices, and payments. This process involves comparing bank records to expense receipts, identifying any discrepancies, and ensuring alignment between your construction accounting system and your bank account. Address any inconsistencies by contacting your bank.

7. Pay Estimated Taxes

Construction companies typically pay estimated quarterly taxes, with various methods available, including Electronic Federal Tax Payment System (EFTPS) enrollment, online payments via the IRS website, debit or credit card transactions, or mailing checks or money orders to the IRS.

Your choice of a tax calculation approach can include a “completion percentage” method, which calculates taxes based on quarterly income and expenses, or a “completed contract” method, which assesses taxes owed on each individual contract. A reliable accounting strategy should be chosen to minimize confusion during tax time, and professional assistance may be advisable.

8. Consider Hiring an Accountant (Optional)

While managing construction accounting independently is possible, the complexities of owning a construction company may lead to costly accounting errors. Similar to having project managers overseeing job sites, employing a professional accountant to handle various transactions across different jobs and services can be beneficial.

Accountants provide clarity on financial data, manage books, generate reports, estimate quarterly tax payments, maintain cash flow, and safeguard narrow profit margins.

9. Leverage Construction Accounting Software

To elevate your construction accounting beyond manual methods and spreadsheets, consider utilizing construction accounting software. This software streamlines tasks such as online invoicing, expense tracking, payment monitoring, financial report generation, and more. Clients tend to have greater trust in businesses employing accounting software due to its secure and convenient online payment capabilities. Additionally, construction accounting software equips you with the necessary tools to manage accounting effectively and make informed financial decisions.

Efficient construction accounting is imperative for the success of construction companies. It goes beyond project oversight, serving as the linchpin for financial health and long-term viability in an industry known for its tight profit margins and intricate project intricacies. The unique challenges of construction accounting, from specialized revenue recognition to complex job costing, demand meticulous attention and adherence to industry standards.

To navigate these complexities, construction companies should adhere to the eight crucial steps outlined in this article, which include understanding construction accounting nuances, setting up a robust accounting system, choosing the right accounting method, implementing job costing, and monitoring cash flow.

Additionally, practices like segregating personal and business expenses, reconciling statements, and utilizing construction accounting software can bolster financial stability and foster trust with clients.

Construction accounting is the backbone of a thriving construction business, safeguarding profit margins and ensuring long-term prosperity. By embracing its intricacies and following the prescribed steps, construction companies can fortify their financial foundations and thrive in this dynamic and challenging industry.

Frequently Asked Questions (FAQs) on Construction Accounting:

1. What makes construction accounting different from other forms of accounting?

Construction accounting differs due to the project-based nature of work, diverse revenue recognition methods, fluctuating operating expenses, job costing intricacies, and the need to manage revenue recognition across long-term contracts.

2. What are the primary challenges faced in construction accounting?

Construction accounting faces challenges like managing diverse services, fluctuating overhead costs, accurately tracking costs of goods sold, dealing with long-term contracts, and reconciling project-based revenue recognition.

3. How do construction companies manage project-specific finances effectively?

To manage project finances, construction companies employ job costing to track costs associated with individual projects, recognize revenue accurately based on project completion, and monitor cash flow meticulously.

4. Which accounting methods are commonly used in construction accounting?

The two primary revenue recognition methods in construction accounting are the percentage of completion method (recognizing revenue based on project progress) and the completed contract method (recognizing revenue upon project completion).

5. Why is segregating personal and business expenses crucial in construction accounting?

Separating personal and business expenses is essential to maintain financial clarity, streamline accounting processes, and ensure accurate financial reporting, especially for tax purposes.

Accounting Tips for Startups: Navigating Financial Success

Starting a new business venture is an exhilarating journey, but it also comes with its fair share of financial responsibilities and complexities. Proper accounting practices are the cornerstone of a startup’s financial health and success. In this comprehensive guide, we’ll explore essential accounting tips for startups, helping you establish a solid financial foundation and make informed financial decisions.

1. Choose Good Accounting Software

One of the first crucial steps for any startup is selecting the right accounting software. Modern startups benefit immensely from cloud-based accounting solutions that offer accessibility, scalability, and real-time financial data.

Invest in bookkeeping software (and possibly a bookkeeper). Bookkeeping involves systematically tracking all income and expenses, serving as a crucial element of effective financial management that equips business owners with essential data for informed decision-making.

Often, small business owners lack the accounting expertise required for this task. Consequently, hiring a dedicated professional or outsourcing the function, especially for smaller enterprises, proves to be a prudent investment.

Accounting software streamlines the time-consuming and error-prone manual bookkeeping processes, simplifying the retrieval of necessary information for crafting financial statements. Leading accounting software options like QuickBooks Online, Xero, and FreshBooks empower startups to streamline financial transactions, generate accurate reports, and maintain financial records with ease.

Cloud-based accounting software has gained substantial popularity among small businesses, with over 50% of U.S. respondents in a Robert Half survey indicating the use of cloud-based solutions for accounting and finance. While many businesses initiate their accounting journey with basic software, as they expand and confront increasing complexity, they may find it necessary to transition to an enterprise resource planning (ERP) system.

An ERP system allows the addition of modules for various business functions, all integrated into a single database, promoting efficiency and cohesion within the organization. The right software can save you time, reduce errors, and provide valuable insights into your business’s financial health.

2. Separate Bank Account

To maintain financial clarity and accountability, it’s vital for owners to have separate personal and business finances through separate bank account. Open a dedicated business bank account to handle all monetary transactions related to your startup.

This separation simplifies record-keeping, ensures compliance with tax regulations, and offers a clear view of your business’s financial well being. Additionally, consider obtaining a business credit card for expenses related to the startup. This separation makes it easier to track and manage business expenses, helping you stay organized and claim tax deductions effectively.

3. Adhere to Generally Accepted Accounting Principles

Following Generally Accepted Accounting Principles (GAAP) is essential for accurate and standardized financial reporting. While GAAP compliance may not be legally mandated for all startups, it’s considered best practice. Adhering to GAAP principles ensures consistency in financial statements, making it easier for potential investors, lenders, and stakeholders to understand your company’s financial health.

4. Implement a Robust Accounting System

Establishing a sound accounting system is fundamental to startup success. This system encompasses processes, procedures, and controls for recording financial transactions, managing cash movement, and producing accurate financial reports.

It helps you maintain financial discipline and ensures transparency in your startup’s financial operations. A well-structured accounting system is the backbone of financial stability and growth.

5. Monitor Cash Flow

Cash movement is the lifeblood of any startup. Efficient cash movement management ensures you have enough liquidity to cover operational expenses, invest in growth opportunities, and weather unforeseen challenges.

Regularly analyze your cash flow statement to track the movement of money in and out of your business. Identify trends, anticipate potential cash shortfalls, and take proactive measures to maintain a healthy cash movement.

6. Prepare Accurate Financial Statements

Accurate financial statements, including income statements (profit and loss), balance sheets, and cash flow statements, are essential for gauging your startup’s financial well being. These statements provide a snapshot of your business’s financial performance, assets, liabilities, and cash position.

Keeping these statements up-to-date and accurate ensures that you have a clear understanding of your startup’s financial position, allowing you to make informed decisions and attract investors or lenders.

7. Properly Record Business Expenses

Accurate and meticulous recording of operating cost is a foundational aspect of sound financial management for startups. This practice encompasses comprehensive documentation of all expenses associated with your business, encompassing everything from receipts to invoices and payment records. By diligently maintaining these records, startups can harness several advantages, primarily revolving around tax deductions and financial management.

Firstly, maintaining meticulous records of business expenses is instrumental in reducing taxable income and subsequently lowering your tax liability. This not only ensures that you are not paying more in taxes than necessary but also allows you to take full advantage of available deductions, ultimately contributing to your startup’s financial well being.

Additionally, it enables transparency and accountability in your monetary transactions, providing a clear overview of where funds are allocated within your business. This information is invaluable when making strategic decisions, as it helps identify areas where cost-efficiency can be improved and resources can be allocated more effectively. In essence, proper expense recording serves as a foundation for a well-organized and fiscally responsible startup, facilitating both tax optimization and efficient financial management

8. Choose the Right Accounting Method

Startups can typically choose between two accounting methods: cash accounting and accrual accounting. The method you choose affects when you recognize revenue and expenses. Understand the implications of each method and select the one that aligns with your business operations and goals.

Choosing the right accounting method is crucial for startups, as it profoundly impacts financial recording and reporting. Startups typically have two primary options: cash accounting and accrual accounting.

Cash Accounting recognizes revenue and expenses when actual cash changes hands, making it straightforward and suitable for smaller startups. It offers clear insights into cash flow and can defer taxes until payment receipt, benefiting businesses with irregular income.

Accrual Accounting records revenue when earned, regardless of cash flow, and expenses when incurred, providing a more accurate financial picture. It suits larger or complex startups, though it’s more intricate. Accrual accounting enhances financial reporting accuracy and ensures compliance with accounting standards.

Factors to consider include business size, tax implications, financial reporting needs, and cash flow management. Consulting an accountant or financial advisor can guide startups in choosing the method aligning best with their goals and regulatory requirements.

9. Plan for Taxes

Tax planning is an integral part of startup accounting. Be prepared to handle payroll taxes, income taxes, and any other applicable taxes based on your business structure. Consider working with a tax professional or using tax software to ensure accurate tax returns and compliance with tax laws.

Tax planning is indispensable for startups, encompassing a comprehensive grasp of various tax obligations, such as income taxes and payroll taxes, unique to their business structure. Collaborating with tax professionals like CPAs or tax advisors is often prudent due to intricate tax laws and regulations, ensuring compliance and minimizing tax liabilities. Additionally, employing tax software can streamline income and expense tracking, tax calculations, and form generation, enhancing accuracy and efficiency.

Focusing on compliance is paramount in tax planning to avert penalties, fines, and legal complications that can adversely affect a startup’s financial standing. Simultaneously, optimizing tax liability entails exploring deductions, credits, and incentives to alleviate the tax burden, freeing up resources for reinvestment or business growth.

In summary, tax planning is a multifaceted facet of startup accounting that necessitates understanding tax obligations, professional collaboration, tax software utilization, compliance assurance, and tax liability optimization, collectively fostering financial stability, legal adherence, and capitalization on available tax advantages.

10. Seek Professional Guidance

As a startup owner, you wear many hats, but managing complex financial matters may not be your forte. Consider partnering with accounting professionals or firms specializing in small businesses.

They can offer expert guidance in cash flow management, help with tax preparation, and ensure that your financial records are accurate and compliant with regulatory requirements.

Effective bookkeeping process and financial accounting is the cornerstone of a successful startup. Implementing these accounting tips for startups can help you establish a solid financial foundation, navigate the complexities of financial management, accounting process and set your business on a path to sustainable growth. By making informed financial decisions and leveraging modern accounting tools, your startup can thrive in today’s competitive business landscape.

Ready to take your startup’s financial health to the next level? Don’t navigate the complexities of accounting and bookkeeping alone. Get the expert help you need with Vyde! Our dedicated team offers comprehensive business accounting, tax, and bookkeeping services tailored to empower startups like yours. With Vyde’s support, you can establish a solid financial foundation and set your business on a path to sustainable growth. Make informed decisions and leverage modern tools with Vyde by your side. Contact Vyde today to thrive in the competitive business landscape!

Frequently Ask Questions:

How do I choose the right accounting software for my startup, and why is it essential?

Choosing the right accounting software depends on your business needs. Look for cloud-based options like QuickBooks Online, Xero, or FreshBooks for accessibility, scalability, and real-time financial data. It’s essential because it streamlines financial transactions, generates accurate reports, and simplifies financial record-keeping.

What’s the significance of maintaining a separate bank account for my startup’s finances, and should I get a business credit card?

Maintaining a separate bank account is vital to ensure financial clarity and compliance with tax regulations. It offers a clear view of your business’s financial health and simplifies record-keeping. Getting a business credit card for startup expenses makes it easier to track and manage expenses, helps with organization, and allows you to claim tax deductions effectively.

Why should startups adhere to Generally Accepted Accounting Principles (GAAP), and is it legally required?

Adhering to GAAP principles is essential for accurate and standardized financial reporting. While it may not be legally mandated for all startups, it’s considered best practice. Following GAAP ensures consistency in financial statements, making it easier for potential investors, lenders, and stakeholders to understand your company’s financial health.

How can I establish a robust accounting system for my startup, and what are the benefits of doing so?

To establish a robust accounting system, define processes, procedures, and controls for recording financial transactions, managing cash movement, and producing accurate financial reports. The benefits include maintaining financial discipline, ensuring transparency, and providing a stable backbone for financial stability and growth within your startup.

Why is monitoring cash flow crucial for startups, and what steps can I take to ensure a healthy cash flow for my business?

Monitoring cash flow is crucial because it ensures you have enough liquidity to cover operational expenses, invest in growth opportunities, and handle unforeseen challenges. To ensure a healthy cash flow, regularly analyze your cash flow statement to track money movement. Identify trends, anticipate potential cash shortfalls, and take proactive measures, such as managing expenses, to maintain a robust cash flow.

Why Saving Receipts for Taxes Is Crucial: Tips and Strategies

Tax season is a time of year that many people dread, but it doesn’t have to be so anxiety-inducing. One of the most effective ways to ease the stress of tax filing during tax time and potentially save money is by diligently saving your paper receipts. Whether you’re a small business owner, self-employed individual, or simply a taxpayer looking to maximize deductions, understanding which receipts to keep and how to manage them is crucial. In this comprehensive guide, we’ll explore why it is important to save receipts for taxes and provide you with valuable tips and strategies to streamline the process.

Learn Which Small Business Receipts to Keep

When it comes to small businesses, accurate record-keeping is essential. Keeping track of your expenses through receipts can help you determine your taxable income and ultimately reduce your tax liability from your gross income. But which receipts should you keep? Here are some common types of receipts that you should definitely hold onto for tax purposes:

Receipts To Keep for Small-Business and Self-Employment Taxes

Expense Receipts

Expense receipts refer to documentation or records of expenditures made by individuals or businesses for various purposes.

These are vital records of expenditures incurred by individuals or businesses. They serve as tangible proof of various types of spending, including personal purchases, business expenses, travel expenses, transportation expenses and charitable donations. These receipts are instrumental in budgeting, financial record, and, most importantly, for tax purposes.

Taxpayers rely on it to determine their deductible expenses, which can significantly reduce their taxable income. Properly organizing, categorizing, and retaining these receipts is essential for maintaining financial accuracy and compliance with tax regulations.

Purchase Receipts

Purchase receipts are essential financial documents that provide a detailed record of items acquired for business purposes, such as inventory, equipment, or assets. These receipts play a pivotal role in a company’s financial management by serving as concrete evidence of business-related transactions. They help in accurately calculating the total cost of acquiring assets, which is vital for determining a business’s financial health and evaluating its profitability.

Moreover, they are invaluable when it comes to tax writes-off and asset depreciation. Businesses can claim deductions on the cost of purchased business assets, or office expenses gradually reducing their taxable income over time. The information contained in these receipts is instrumental in ensuring accurate financial reporting, complying with tax regulations, and optimizing tax strategies.

Furthermore, purchase receipts facilitate comprehensive asset management and tracking. They allow businesses to keep an updated record of their assets, which is crucial for assessing their value and depreciation over time.

Childcare Expenses

You might be eligible to receive a tax credit for expenses related to caring for your child or dependent. These expenses can include payments made to a babysitter, daycare, day camp, after-school program, or another care provider. If the care is provided in your home, you may also qualify for additional expenses, such as hiring a maid, cook, or housekeeper to care for your child or dependent.

To qualify for this credit, you must have paid these expenses to allow yourself (and your spouse if you’re married) to either work or actively search for work. Both you and your spouse need to have earned income, unless your spouse is disabled or a full-time student, in order for these expenses to be eligible.

You can claim this credit if you have one of the following types of dependents:

A child under 13 years old whom you claim as a dependent.
A disabled spouse or dependent who is unable to care for themselves due to physical or mental reasons

Unreimbursed Work-Related Expenses:

If your job requires expenses that your employer doesn’t reimburse, these receipts can be valuable for tax deductions.

If you’re someone who itemizes deductions and anticipates work-related costs, it’s advisable to keep a record of those receipts for taxes. These tax professional deductions encompass expenses like tools, equipment, supplies, mandatory work uniforms unsuitable for non-work settings, protective gear, professional dues (such as union memberships or professional organization fees), subscriptions to professional publications, and even costs incurred during a job search within your current field.

Moreover, you had the potential to deduct expenses associated with specific training and educational endeavors relevant to your profession, as well as expenses linked to using your home for business purposes and personal vehicle mileage related to work duties (excluding commuting). It’s worth noting that some individual states still permit deductions for these types of expenses

Personal Income Tax Receipts:

Receipts to Retain for Personal Income Tax Records It’s not just business owners who should be diligent about preserving receipts; many taxpayers are eligible for tax writes-off that may necessitate proof in the form of receipts.

Additionally, make sure to keep the following documents:

Receipts for purchases that qualify for special tax benefits, like those eligible for an educator expense deduction.
Supporting receipts and documentation for eligible home improvement expenses on real estate.
Receipts for qualified medical expenses and dental costs, including out-of-pocket payments for medical services, hospital stays, prescription medications, and expenditures associated with traveling to and from medical appointments, which encompass parking fees and tolls.
Documentation verifying tax-deductible donations, regardless of the amount, in the form of cash, checks, or other monetary gifts.
Receipts for dependent care expenses if you’re a working parent or if you incurred these costs while actively seeking employment.
Receipts for energy-saving home improvement projects.
Receipts indicating state and local sales tax payments made on purchases, particularly if the sales tax surpasses your state income tax withholding or if you reside in a state with no personal income tax.
Receipts for qualified education expenses, such as tuition, fees, books, and supplies.

By keeping these receipts, you can better document your expenses, leading to potential tax savings.

Business Expense Receipts

Your business expenses encompass the various costs associated with operating your business, excluding your purchases. Seek expert guidance on which receipts for taxes are essential for your business tax records.

At times, simply having canceled checks may not suffice as evidence for a deduction, as explained by Lee. For instance, a check written to Costco may not serve as proof of a business expense, as it could be for groceries or personal items.

Similarly, credit card charges related to a business trip to Maui might appear to be a vacation unless you can furnish additional documentation supporting the business purpose. Therefore, it’s crucial to save receipts, business conference flyers, and other relevant documents to substantiate the business nature of these expenses, as advised by Lee.

Here are the types of tax documents you should retain for tax purposes:

Canceled checks
Cash register tapes
Account statements
Credit card receipts and statements
Petty cash slips
Invoices

Donations to Charitable Causes

Whether you’ve given clothing or food supplies to a nearby shelter or provided monetary contributions to support veterans, you have the opportunity to claim tax deductible donations. It’s important to note that deductions can only be claimed for donations made to organizations that hold tax-exempt status.

Specifically, if an organization possesses a 501(c)(3) designation, you are eligible to deduct your contributions. In cases where the organization doesn’t have this status, you can still claim deductions, but you must first confirm with the IRS. If required, don’t forget to request a receipt, especially if you intend to itemize your tax return.

Healthcare Expenses

Make sure to retain documents reflecting proof of paid bills or medical expenses for yourself, your spouse, your children, or any other individuals you claim as dependents.

Furthermore, you can also claim deductions for various medical items, including but not limited to medical equipment, breast pumps, eyeglasses, contact lenses, and more.

In fact, the IRS includes the following medical expenses in a comprehensive list of eligible tax deductions:

Expenses for Guide Dogs
Costs Associated with Medical Examinations and Tests
Acupuncture and Chiropractic Services
Occupational and Physical Therapy
Sessions with Psychiatrists and Psychologists
Weight-Loss Programs (Only if Prescribed by a Doctor for a Diagnosed Condition)
Nursing Care
Hospitalization Costs
Expenses for Transportation to and from Medical Appointments
Lodging Expenses for Out-of-Town Medical Treatment

Other Expenses

There are a few more types of receipts that you should consider retaining, depending on your individual tax circumstances. In certain cases, it can be advantageous to claim a deduction for the state and local sales tax you paid on your itemized deductions, instead of the total amount of state and local income taxes you incurred throughout the year.

Typically, this deduction for sales tax is most beneficial for individuals who made one or more significant purchases during the tax year, such as a car, boat, RV, or home extension, resulting in a higher sum of sales tax paid compared to their income tax withholding.

It is also relevant when you reside in a state that does not impose a state income tax. If your situation aligns with this description, it’s prudent to retain all sales receipts.

Saving receipts for taxes is a crucial part of responsible financial management . By understanding which receipts to keep, embracing digital record-keeping, and maintaining an organized filing system, you can not only make tax time less stressful but also potentially unlock significant tax savings. Remember that while this guide provides valuable tips and strategies, it’s always wise to consult with a tax professional for personalized advice tailored to your specific circumstances.

Stress-Free Tax Management Awaits You at Vyde!

Say farewell to tax worries and unexpected costs. With Vyde, experience seamless tax completion, catch-up bookkeeping, and overdue tax assistance. Our commitment to year-round service guarantees maximum savings on your tax bill. Don’t wait – let Vyde take the helm of your business taxes today!

Frequently Asked Questions:

Why is it important to save receipts for tax purposes?
Saving receipts is crucial for tax purposes because they serve as proof of your business and personal expenditures. These receipts can help you determine your taxable income, claim deductions, and potentially reduce your tax liability, leading to significant tax savings.
What types of receipts should small business owners keep for tax season?
Small business owners should keep receipts for all business expenses, including expense receipts, purchase receipts for items like inventory and equipment, and any receipts for business-related travel. Additionally, documentation for unreimbursed work-related expenses, charitable donations, and healthcare expenses should be retained.
Can personal expenses ever be deducted on taxes?
Yes, certain personal expenses can be deducted, such as qualified medical and dental costs, childcare expenses for working parents or job seekers, donations to charitable causes, and significant purchases that may offer special tax benefits or credits.
How long should I keep my tax receipts?
The IRS recommends keeping tax records for at least three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. However, if you file a claim for a loss from worthless securities or bad debt deduction, keep records for seven years.
What is Vyde, and how can it assist with tax management?
Vyde is a service that offers seamless tax completion, catch-up bookkeeping, and assistance with overdue taxes. It provides year-round service to ensure maximum savings on your tax bill, aiming to make tax management stress-free for its clients.

Finding the Right Bookkeeper for Your Business

Are you looking for reliable bookkeeping services for your business? Like many business owners, you may not know where to start. When you are passionate about your business but the numbers are overwhelming and challenging for you, competent and professional bookkeeping services can easily take care of the dollars and cents on your behalf. If you would like to be truly profitable and successful, you have to keep tabs on your business finances.

As a small business owner, if you do not know where you stand on a monthly, quarterly, or annual basis, your chances of surviving and growing can decrease considerably. There is no doubt that a bookkeeper can help manage your finances, provide valuable insight, and can have a big impact on the trajectory of your small business.

Here are five things you should consider when hiring the right bookkeeper for your business.

1. The Right Experience and Expertise

When you start researching potential bookkeepers or bookkeeping companies, find out about their experience level. It is no secret that every industry has its unique quirks when it comes to financial record-keeping. Check to see if the company or candidate has experience and confidence that they can navigate the ins and outs of your industry.

In addition, make sure you have the right experience for the right role. Instead of having one person try to tackle all your finances, look for a team of specialized individuals who work well together. Having someone who specializes in bookkeeping focus on your books and an accountant who specializes in tax do your taxes can improve accuracy and save you money.

While a company website will certainly offer some valuable insights into their experience, you should ask a few important questions. Some of them are:

How long has the candidate or company been in the bookkeeping industry?
What type of clients do they serve?
Do their services meet your business needs?

Accounting and bookkeeping is not an easy science. So, for a business that is starting out or growing, you need to have somebody who has been successfully doing this job for quite some time.

2. Communication is Key

If you are not good with numbers, you need a professional who will help you understand and appreciate the numbers. So, it is important to make sure that your communication style and the communication style of your bookkeeper work well together.

Some bookkeepers or bookkeeping companies charge extra for financial reviews or consultations. Ask about potential additional costs and be sure to factor those into your budget. It’s good practice to meet with your bookkeeper or accountant at least once per quarter to get a better gauge on your business finances.

Your bookkeeper needs to present your business finances in a simple way that makes sense and also keeps you informed at both the frequency and level that you prefer.

3. They Must Have Attention to the Detail

Numbers can be challenging and tricky to deal with. Keep in mind that even a small error or mistake in figures could impact your company. Look for a bookkeeping company or individual that has a thorough review process so you can have confidence your reports are accurate. A bookkeeper’s ability to give attention to the smallest details can ensure that mistakes or errors are minimized.

4. Look for Transparency and Trustworthiness

When it comes to bookkeeping, transparency must be among the first things that you should look for in a candidate. The bookkeeper you choose should be able to give you an instant and reliable quote for their services without any hidden fees that may pop up after several months of working together. There is no doubt that this is the type of transparency and honesty that you need in the bookkeeper who will be handling your business finances.

Also, note that any bookkeeping professional that you hire should be a reliable and trustworthy candidate. You will entrust this professional with confidential and sensitive financial details of your business. Choosing an individual or company that you could rely on and trust would give you peace of mind.

5. Up to Date on Tech

The financial industry is continually evolving, and while the principles of bookkeeping and accounting might not change, there are ways your bookkeeper can make your financial data more accessible and digestible than ever before. Look for a bookkeeper who is open to adopting innovations and can keep up with changing technology to provide you with the best experience.

The right bookkeeper for your business should be adept at using standard bookkeeping software and tools, and they should also have an innovative mindset to help you have better insight and make informed business decisions.

There is no doubt that hiring a bookkeeping professional or company can be an important decision for your business. An excellent bookkeeping partner will be with you and help you every step of the way as your company grows.

What to Look for in an Accountant

Accounting and tax software have made it possible for small businesses to get along without having an in-house accountant. Depending on the business’s complexity and the owner’s appetite for accounting tasks, small businesses can thrive for years with just an occasional phone call with an accounting software’s customer support line.

However, as businesses grow, accounting issues get more complex, and tax filings become too cumbersome for owners to handle. That’s when you hire an accountant — either a firm or an employee — to take on the financial tasks that eat up your spare time.

Accountants can alleviate the administrative burden of running a business, leaving owners with more time to focus on doing what they love. But with so many options available for accounting services, how do you know what to look for in an accountant and what’s best for your business needs?

Follow these tips and get your small business accounting in order with the right accountant!

Overview: What Does a Small Business Accountant Do?

With all the help accountants can provide, it’s no wonder why accountants are a business owner’s best friend. A small business accountant can maintain the books, analyze financial results, file business taxes, and consult with owners to expand the business’s bottom line.

Small business accountants are best known for carrying out day-to-day bookkeeping. They track sales and expenses, and keep an eye on cash flow. Some small business accountants also run payroll.

At the end of the accounting period, accountants produce financial statements — balance sheets, income statements, and cash flow statements — to give you an overall picture of your company’s financial health. Experienced accountants use the financial data to prepare your business taxes, a task most business owners would be happy to get off their plate.

Aside from rote bookkeeping and tax filing, the most significant value-add from a small business accountant is financial analysis and teaching basic accounting concepts. Through financial ratio analysis, accountants pinpoint the areas where your business could improve efficiency, boosting your bottom line. Business owners lean on their accountants to suggest changes to the business model that can yield profits.

Budgeting also falls within a small business accountant’s wheelhouse. Integral to creating a realistic growth plan is a financial forecast to reel in your unwieldy dream sequence. A small business accountant tends to be a jack-of-all-trades able to answer most financial questions you have. However, you can find accountants who specialize in the areas that meet your business needs. For example, if you need someone to maintain your accounting software, you’ll want to hire an experienced bookkeeper. If you’ve decided you’re never filling out another tax document, find yourself a small business tax accountant.

4 Things to Consider When Looking for a Small Business Accountant

Ask yourself the following questions before starting your search.

1. What Accounting Services Are You Looking For?

Make a priority list for the tasks you’d like the accountant to take on. Searching for an accountant is easier when you have a job description for the role.

A small business accountant’s task list could include:

Audit preparation
Day-to-day bookkeeping
Accounts payable
Accounts receivable
Tax preparation
Payroll
Financial statement drafting
Financial planning and analysis
Budgeting

Consider not only your company’s current needs but also those in the near future. For example, don’t search for a bookkeeper when you think you’d eventually like to turn over payroll duties to someone else. You can likely combine these two tasks into an accounting clerk position.

2. Hiring a Firm or an Employee

You’ll want to determine whether you want an in-house accountant or a firm to manage your business’s accounting workload. Each has benefits and drawbacks, and it comes down to how much accounting help you need.

For example, hiring an in-house accountant, either part-time or full-time, ensures a certain dedication of your accountant’s time. However, small businesses that don’t have a constant need for accounting work might find that a firm can bring 360-degree service at a fraction of the cost. Hiring an employee can be costly when you add wages, employer payroll taxes, and other benefits.

If you’re unsure which route to take, put your feelers out to firms first. You can test-drive a firm by giving them just a portion of your total accounting workload before deciding whether to continue. Hiring an employee requires commitment.

3. Determining Your Budget

Knowing your budget might also help to answer my previous question. As you search for an accountant, consider how much you’d like to spend on accounting services.

Your budget should reflect the services and expertise your business requires, considering the complexity of its accounting issues. Where your business is located also influence the going rate for accounting services.

Research is the best way to build a budget for accounting help. If you’re looking to hire a firm, get some quotes. When looking for an in-house accountant, check out websites such as Glassdoor.com to see what accountants in similar companies earn. Another way of gaining information is asking a peer or other small business owners and gaining insight through them.

4. How Software Can Lighten Your Accounting Workload

If your business doesn’t already have accounting, payroll, and tax software, now might be a great time to introduce it. Software can take on most of the automated aspects of accounting.

It’s not a perfect solution: There will still be many aspects of your accounting you will have to manage yourself. It might be worth paying extra to have a professional handle your financial statements and taxes to ensure accuracy and save you the hassle.

How to Find an Accountant For Your Small Business

Like in all professions, reputation is paramount. Ask your trusted family, friends, and colleagues for accounting firm recommendations.

Make sure you’re talking to people who have hired these accountants to do similar work. For example, a great personal tax accountant might not have the specialty or interest in running your S corporation’s payroll.

Use the local society of CPAs directory.

If you’re looking for the expertise of a CPA, check out the website of your local society of CPAs. They commonly have directories of local individuals and firms with filters to help you find professionals with a specialization in your industry who can meet your accounting needs.

Search online.

Perhaps nobody you know has a recommendation. You can still find a great accountant for your business with an online search.

If you’re looking to hire an employee, create a recruitment plan and post your job description on a few online job boards.

When searching for an accounting firm, make sure to checkout clients’ online reviews before you call for a quote. But take online reviews with a grain of salt: People usually only find time to share glowing and hateful reviews, with little to nothing in between. But if you find a firm with nothing but bad reviews, consider striking it from your list.

3 Best Practices When Hiring a Small Business Accountant

Keep these tips in mind when hiring your accountant.

1. Look For Experience That Fits Your Needs Now and In The Future

Say you need a bookkeeper today, but you know that tax season is coming up. Hire an employee or accounting firm with the skill set to do both.

You want an accountant who can grow with you and help you tackle any accounting needs that may come your way. When you’re interviewing potential accountants, ask them about the type of accounting software they’re comfortable using and what they do to stay up to date with the latest accounting and tax laws.

Business owners who’ve aced Accounting 101 can ask targeted questions during an interview to assess whether the candidate is ready to take on all they’re looking for.

2. Shop Around

Interview at least three firms before choosing one. Accounting firms can differ greatly on price, and you don’t want to get into a situation where you realize only years later that you’ve been overpaying for services.

Likewise, interview multiple candidates before hiring an in-house accountant. Make sure you’re making the job posting widely available so people from different backgrounds can apply. A diverse pool of applicants is essential in any hiring process.

3. Conduct Background Checks and Check References

Accountants have access to your business’s most private information, from employee records to bank account information. You’ll want to run a background check and ask for references before turning your books over to someone new.

Get Back to Business By Hiring an Accountant

Not everyone is like us at Vyde and loves talking about and practicing accounting. That’s probably for the best. By hiring an accountant, or using accounting services, you’ll be able to get back to doing what you love and have more time to focus on growing your business. If you’re still unsure of where to start, here’s an easy option: try Vyde free for 30 days and see why hundreds of businesses choose our services everyday!

Try Vyde Free

Do I Need an Accountant If I Use Quickbooks?

Yes. Yes, you do need a bookkeeper even if you have Quickbooks. We understand that you’re a small business owner, and you want to save money where you can. But relying on software alone may cost you more in the long run. Accountants and bookkeepers can offer so much more than Quickbooks.

Why You Need a Bookkeeper Even If You Have Quickbooks

Here are just a handful of reasons that having a human touch is better than relying on Quickbooks alone.

Catch More Mistakes

No matter how careful you are, mistakes happen. Whether you type the wrong number or write in the wrong column, errors can easily go overlooked until it’s too late to fix them.

Quickbooks won’t let you know when you make a mistake simply because it won’t realize it either. While the software is helpful, it wasn’t created to see the big picture and can’t account for user error.

A human being, on the other hand, can scan documents for intent and use logic and reasoning in ways that software can’t. Accountants or bookkeepers who have worked with you for a while are also familiar with your company’s history and processes and will intuit which areas may need careful inspection.

While software can seem like an affordable quick fix, financial mistakes often cost more than hiring an accountant.

1. Offer Suggestions

Having a human accountant by your side is great because they can look at all your financial data and offer suggestions based on it.

For example, they can make and share monthly statements with you. These statements will show how you spent your money, how much money you made, and if you’ve been profitable for the month or not.

By having these monthly reports available, you can quickly fix any issues involving cash flow before they grow too big to handle. These reports also come in handy if there are any issues with the IRS.

Accountants can also offer strategies to grow your business if you feel stuck. These strategies can include how to get more investors, what risky moves may be worth taking, and who to hire or partner with.

2. Teach You How Money Works

We know that you know the basics of how money works, but how familiar are you with complex money flows? Many businesses start great but quickly run out of money because of mistakes, poor decisions, and bad luck.

A bookkeeper or accountant can guide you through the process of how money works when you run a business. While you can create a budget that includes products, payroll, and utilities, accountants will add things you may not have thought about.

Plus, their budgets will be much more precise than yours.

3. Handle Taxes

Yes, it’s time to talk about the dreaded T-word. Doing taxes is already hard enough, but sometimes tax software can make it harder. Whether you’re a new business or a veteran, who doesn’t want support and reassurance that you’ve done everything right with your taxes?

If your business had complex financial changes like takeovers, mergers, or expansions into a new industry, you’d definitely want assistance from a professional.

Having a bookkeeper or accountant by your side will not only help you handle the IRS, but accountants will also keep you organized and make sure you receive all your deductions.

At Vyde Tax and Accounting, we bundle your tax filing fee with the monthly bookkeeping and unlimited accountant access. Click here to learn more!

4. Avoid Audits

One responsibility of a bookkeeper is to help you avoid audits. Audits can happen for a variety of reasons, like form mistakes, charitable deductions errors, or changes in tax laws. But they happen at random, too.

Having an accountant as a teammate is a great asset should you be randomly selected for an audit. Not only will they have all the information the IRS needs readily available, but they will be able to communicate in a language that the IRS speaks, which can help expedite the process.

5. Give You One Less Thing to Worry About

You’re an overworked business owner with too much to worry about. A bookkeeper or accountant may not solve all your problems, but they can take many financial tasks off your plate.

Bookkeepers can send and pay invoices, handle payroll, and track sales. They are the perfect partner for small businesses because they allow you to focus on more critical areas of your business.

Vyde Wants to Help You

While Quickbooks is convenient, it lacks a human touch. Keeping your business on track, catching mistakes, and offering helpful solutions are just a few things an accountant or bookkeeper can assist with.

Vyde wants to help small business owners like yourself with all their financial needs. We want to be more than just an accountant; we want to be a teammate who inspires you to grow your business more than ever.

We’ve helped over 10,000 small businesses already! Contact us today to see how we can help yours.

FAQs:

Why do I need a bookkeeper if I already use Quickbooks?

While Quickbooks is useful, it can’t catch all financial mistakes or offer personalized suggestions like a human bookkeeper can. A bookkeeper provides a holistic view of your finances and can identify areas needing attention that software might overlook.

What suggestions can a bookkeeper offer for my business?

A bookkeeper can analyze your financial data and offer suggestions such as creating monthly statements to track spending and profitability, providing strategies for business growth, and offering guidance on financial decisions like investments and partnerships.

How can a bookkeeper help me understand complex financial concepts?

Bookkeepers can teach you how money flows within your business, helping you understand budgeting, cash flow management, and financial planning in detail. Their expertise ensures that your budgets are accurate and comprehensive.

Why should I rely on a bookkeeper for handling taxes?

Handling taxes can be complex, and software may not always provide the necessary support. A bookkeeper can ensure accuracy, handle complex financial changes, maximize deductions, and help you avoid audits, providing peace of mind during tax season.

How does having a bookkeeper reduce my workload?

By handling tasks like invoicing, payroll, and sales tracking, a bookkeeper frees up your time to focus on core aspects of your business. They serve as a valuable partner, alleviating financial stress and allowing you to concentrate on business growth.

Interested in Learning More?

Schedule a free consultation with our team!

Do I Need an Accountant for My Small Business?

Why do you need an accountant for your small business? Your business does not have a lot of cash flow or many employees making filing taxes easy, right?

As a small business owner you might think filing your own taxes on top of all the other tasks you juggle will be easy, but filing your own taxes is a huge responsibility for small business owners.

Take it from us, though: after a certain amount of progress as a company, doing your own business accounting isn’t likely worth your time, especially if your background isn’t in finance. The truth is that small mistakes in your finances can add up and may cost you a lot in the long run. Here’s why you need an accountant for your small business and when you’ll know it’s time to find one.

Should I Hire an Accountant for My Small Business?

If you’re asking this question and your small business is already doing well, the answer might be “Yes.” Accounts do much more than just your taxes every year, although that is arguably one of the most valuable services any accountant has to offer your organization.

The world of business finance can be complicated, even if your scope of operations isn’t exactly titanic. Running into trouble with the IRS will usually end up being an absolute nightmare, even for very small infractions—hiring a business accountant early is one way to prevent trouble before your books have a chance to get ahead of you. However, this won’t always be an affordable option for some.

The power of an accountant on your team is undeniable, which then begs the question: when do I need an accountant for my small business? At what point does the payoff outweigh the costs associated with a professional accountant?

When Is the Right Time to Hire an Accountant for My Small Business?

After your business begins to flourish, your finances may become significantly more complicated. This is especially the case as you begin to make more new hires and earn more income—and, of course, spend more money, too.

Your job as a leader is just as important as any job you can delegate to somebody else. Small business owners will usually be excellent multitaskers by nature. Eventually, your stack of hats will become so tall and unwieldy that it’s likely to fall over.

As soon as your finances begin to overwhelm you daily or weekly—losing track of receipts and invoices, for example, or simply not having time to document every transaction required for a complete account of your company’s activity—the time to hire a dedicated company accountant or bookkeeper has probably come to pass.

You may have an external bookkeeper preparing your finances early on for tax season. However, the investment in a certified accountant may eventually end up paying for itself. An internal accountant will be more familiar with tax codes and regulations and will be worth having if an audit comes along.

Why Do I Need an Accountant for My Small Business?

Are you running your finances for your business on your own? It may seem like a practical role to take on at the beginning of your venture, which is why so many small business owners end up giving it the ol’ college try.

After a certain point, however, a lack of expertise and even simple naïveté may cost you dearly. An innocent mistake may compound into something much more expensive in the long run—why waste your time trying to wade through something an accountant will have no trouble doing perfectly for you?

A business accountant can save you more than money in the event of an audit; they’ll also save you a lot of time as they take the minutiae of your finances off of your plate as a small business owner.

What exactly does a small business accountant do? Their duties may cover any and all of the following essentials:

Bookkeeping: Documenting every fiduciary transaction passing through your small business is an enormous responsibility. All purchases, sales, payments, and paper trails must be maintained and kept up to scratch.
Payroll: This may include helping you oversee and carry out payments, filing your employees’ and contractors’ tax documents correctly, and, as mentioned, documenting all of the above.
Tax preparation: Unless you would rather outsource the professional responsible for closing out your books at the end of the year, you’ll need a small business accountant to create your reports and prepare your affairs to file. A great accountant will also be a lifesaver in an IRS audit—if you’re following the rules, they’ll be able to find the mistake and rectify it, incurring as few penalties as possible.
Insight, analysis, and interpretation: Unless you’re a financial expert, it always pays to have somebody who knows what they’re talking about behind the wheel. They may be able to help you navigate problems like overspending, helping you spot issues in your financial statements throughout the year. You might also find that they have a lot of helpful advice on where you could be investing more generously for the sake of growth and your future.

No matter what line of work you’re in, these generalized responsibilities will apply to any small business, whatever stage of development it’s in. You may know the trade better than anybody on your staff, but without the right partner to guide your hand as you make essential investments in your enterprise, your business might end up not seeing its full potential—or simply fall flat.

The need for a business accountant after finding your place in your industry is more than obvious—what about for brand-new businesses, though? Should start-ups hire a business accountant if they can afford it? To us, it’s simply another way to win.

Do I Need an Accountant for My Small Business Start-Up?

Depending on how established your small business is, your accountant might become a vital part of your organization as you scale. Defining your business goals is one thing—making it all happen realistically and practically is another matter entirely.

A great accountant can offer guidance at these pivotal intersections—helping you choose the right business structure, for example, and ensuring that everything you plan on accomplishing is feasible and compliant with every relevant body of authority (including the IRS!). They’ll also be extraordinary resources to lean on when applying for business loans, working with angel investors and other investments, and perhaps even when applying for small business grants.

A sudden windfall will do nothing for you if you have no idea what to do with it. Business accountants act as trusted confidants and will be able to help you manage your money wisely. Investing in yourself is another critical skill to master. An objective set of professional eyes will lead you to smart financial moves you might not have considered on your own.

What Can the Right Small Business Accountant Do for You?

Why do I need an accountant for my small business? For the same reason, you hire a professional to manage your IT systems. Are your business’s tax problems perplexing you? A small business accountant is almost certainly the solution. The time to delegate has arrived.

If you’re unsure where to begin, contact us for advice on all things financial. The earlier you get our team involved, the more we’ll be able to do for you once tax season finally rolls back around.

Resources

Category: Accounting