Accounting Tips for Your Online Business
When it comes to running an online business, you may consider yourself a pro. However, if you are like many small business entrepreneurs, your accounting experience is minimal at best. Whether you’re entering the world of online commerce or are struggling to get your books in order, here’s a handy guide to help you make sense of receivables, payables, and everything in-between.
1. Get organized
The number one piece of advice for small business owners is simple: get organized. Put simply, you need to sort and manage that stack of papers sitting on your desk or in a filing cabinet somewhere. You need to track every transaction, whether from making a purchase or receiving income. Don’t continue to put it off; now is the time to buckle down and get your finances in order. Too many businesses have failed because they did not organize their books.
2. Keep personal finances separate
Your personal finances should never mix with your business finances. If you have used your personal bank account, go open a new account and use it for business transactions only. Keeping track of business finances is difficult when everything goes into one account. In addition, some business entities are legally required to keep separate bank accounts; it will even make tax time much easier.
3. Ask for help
If you have no experience with accounting, you shouldn’t practice with your own business. While many small business owners choose to do their own bookkeeping, they also know it is one small part of the accounting process. Bookkeeping involves managing the day-to-day financial transactions of your company; accounting is more complicated, dealing with tax laws and financial statements. At the minimum, you should hire a qualified accountant who is familiar with online businesses. You might also consider hiring a professional bookkeeper if you feel you’re not quite up to the task.
4. Make a schedule
If you decide to do it yourself, know that bookkeeping will take up a significant chunk of time each week. You will need to schedule your tasks to ensure they are completed. At the minimum, make time each week to:
- Record deposits
- Create and mail invoices
- Pay bills
- Record daily transactions (bill payments and expenses)
- Reconcile your bank and credit card accounts (monthly is the minimum, but it’s best to reconcile daily to catch errors as soon as they pop up)
5. Find a way to get paid
If you’re a new online business, you’ll need a way to accept electronic payments. There are many methods available, but they each come with their own fees and downsides. If you use bookkeeping software like QuickBooks, you can opt to use their credit card processing service. You could also sign up for a merchant account with your bank or use a third-party service like PayPal. Speak to your accountant to determine which option is best for your business model.
6. Know the laws about sales tax and business licenses in your area
Some cities, counties, and states have no regulations regarding online businesses and sales tax and business licenses. However, that structure varies from one area to the next, and the fines can be substantial if you break the laws in your area. If you have not done so already, consult your local city, county, and state government offices for assistance. If this seems overwhelming right now, ask your accountant for help getting set up.
7. Be ready for tax time
Finally, you’ll need to be prepared for tax time each year. With proper organization and bookkeeping procedures, you can simply hand your financial records over to your accountant. They may ask a few questions about your expenses to see if you qualify for certain deductions, and then they can prepare your tax documents for you. If you have any questions about recording your expenses throughout the year, ask your accountant sooner rather than later.