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Accounting is a key function for any business. It is a critical concern of small business owners. It is imperative to keep a tab on all expenses, bills and receivables as the resources in hand are limited and need to be used sparingly. For a small business, saving resources wherever possible is crucial. Whether it be gaining a tax advantage or curbing costs; small businesses have to keep a tab on all of it. It is only then that they increase their profit margin and growth percentage.
Here are a few tips that can help you go through the rocky road of accounting.
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Operating a business comes at a cost. These costs include manufacturing, marketing, salary payment, administrative costs, and more. All such costs that organizations incur on a routine basis are termed as a business expense. Although every organization has its own set of expenses, there are some common business expenses that most firms pay. Efficient management of these business expenses helps in increasing profits and reducing your tax burden. Here is a list of some common business expense that must be anticipated and managed.
Every business operates from a tangible space. It may be a part of your home or space at a different location. Hence, costs related to the office space are a common business expense. You may have leased or rented the location, or it may be a mortgaged property. Hence, rent or lease and interest on the mortgage would count as some common expenses.
Utility and Administrative Expense
Apart from location costs, there are other general expenses that businesses incur in their day to day operations. These include utility costs like electricity and water, and administrative costs such as expenses for telephone and the internet, office supplies like pen, paper, and pins, and general property maintenance. If you are operating from home, these costs may vary in terms of the part of your home being used for business. However, these remain a part of common expenses irrespective of the type and size of business.
Payroll and Benefits
Employee salary and benefits make a huge portion of business expenses. Employees are paid as per the payroll system of the company. Additionally, there are certain taxes that you incur plus benefits that you pay to your employees which qualify as common business expenses.
Advertising and Marketing Expense
Advertising and marketing are vital for growth and success of your business. To increase sales and expand growth, businesses use various advertising mediums like television, newspapers, billboards, banners, and digital media. Additionally, having a website has become a necessity today. Website maintenance, advertising, and marketing costs are an important business expense.
Although taxes depend on the type and size of the business, they make a vital part of your expenses. Income tax, self-employment taxes, workers compensation tax, and other business taxes are all vital expenses to be taken note of. However, the tax burden can be reduced by identifying deductions and credits. Consulting a tax professional will help in efficient tax management.
Businesses aim to earn profits. Giving a substantial amount of consideration to managing business expense will assist you in increasing profits. Moreover, most of these expenses are eligible for deductions to reduce your tax liability. Consult an accounting and taxation expert for the best ways to handle these expenses.
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Bookkeeping and accounting may not be daunting but are an essential part of business and financial management. A balance sheet is one of the financial statements that help entrepreneurs evaluate their business’s financial health. However, many business owners, especially those with a traditional accounting system in place, face difficulties in balancing their books. Balanced books are vital to gain a clear picture of your business and financial status. It also acts as a strong foundation for vital strategic decisions. While it can be tiresome, there are ways to ensure your books are always balanced. Here are some tips to help you balance your books.
Keep Your Business and Personal Accounts Separate
Mixing business and personal accounts is a common mistake that hinders balancing books. The mixture makes accounting difficult as you have to weed out business related invoices, bills, receipts and payments before recording and balancing. This leads to errors disallowing statements to tally. Having separate accounts is a sign of better organization, making it easier for accounting and balancing your books.
Make Sure You Record Every Single Transaction
Most small business owners are forced to manage everything on their own. With so many things on their plate, accounting mistakes are bound to occur. Missing out on recording daily entries and reconciliation can make balancing books difficult. While big transactions are efficiently managed, petty transactions are often forgotten. Hence, it is vital to record every single big and small transaction to make sure your statements tally.
Invest in an Accounting Software
Accounting software and cloud programs are designed to assist you in better financial management. There is a chance that you may lose or misplace paper receipts or invoices, making it difficult to recognize and find errors in the books. This can hinder balancing your books. Software allows you to store and backup data electronically, reducing the risk of missing out on entries. Moreover, many banks allow you to download data directly into the program, saving time and effort. Hence, it makes it easier to record and manage entries assisting in balancing your books.
Schedule an Accounting Period
When you don’t have an organized schedule for recording and reviewing financial statements, it can lead to errors, overlooked payments and overspending. It is best to input your income and expenditures weekly if not daily and have a monthly schedule to review your financial statements. While you can review them quarterly, reviewing them monthly helps understand and manage accounts easily. It also makes it easier to troubleshoot errors in case your statement does not tally. Rectifying bookkeeping errors is easier when reviewing is done monthly, rather than quarterly. Once this becomes a regular part of your schedule you start spotting trends that help you make better business decisions.
Implementing these tips will ensure an organized bookkeeping system and balanced books. If you still feel that bookkeeping does not fit in your schedule, you can outsource it to professional bookkeepers. Their knowledge and expertise in the field ensure you have an efficient bookkeeping system in place.
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Accounting and bookkeeping are critical elements of any business. Effective accounting allows you to make informed decisions, reduce costs, generate more profits, and track your business growth as well as financial status. Many business owners hire accountants solely on the basis of their taxation experience. A skilled and competent accountant can do much more than just save taxes or make payments. Not considering an accountant’s knowledge levels and competencies while hiring, can hamper your business. Here are a few signs of a bad accountant that you must bear in mind while hiring one.
All of these points indicate the signs of a bad accountant. Having a bad accountant can turn into a business disaster with wrong tax filing and non-compliance of bookkeeping rules. Outsourcing accounting to a trusted professional accounting firm can take this load off, leaving you with space to focus on vital business functions.
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Time and money are the two main constraints that business owners face. Most small and large business owners tend to micromanage everything, and as a result, fail to focus on key tasks vital for business growth. Technological advancement has changed the way businesses operate. Today, you can outsource several business functions in order to reduce costs and focus on generating more profits. One such function that has benefited from the change is accounting and bookkeeping. While they are essential business elements, accounting and bookkeeping are highly time-consuming. Outsourcing your accounting can be beneficial in many ways. Here are a few reasons why you should outsource your accounting.
Let’s you Focus on Vital Business Functions
Accounting and bookkeeping are not a one-time task, but a day to day function. If you fail to work on it daily, it can lead to a massive buildup of tasks. As a business owner, pouring over books to record daily transactions, monitoring records, and also tracking payrolls can eat up your valuable time. With your plate already full of vital tasks, you cannot afford to lose precious time on things that can easily be outsourced. Hence, outsourcing accounting operations to experts provides you with more free time to focus on business growth and establishment.
Eliminates Risks of Turnover and Missed Deadlines
By delegating your accounting functions to a professional accounting firm, you eliminate the risk of absenteeism, turnover, re-hiring and training. Moreover, missing vital deadlines such as filing tax returns, payment to suppliers, etc. can take a toll on your business growth and reputation. A professional team of experts takes the responsibility of all your accounting woes and ensures your work is done on time. This leaves you with ample of time to focus on business growth, without having to worry about payments and employee issues.
Offers Diverse Expertise
The task of accounting is not limited to recording transactions and tracking profits. It goes beyond that and requires expertise in a variety of subjects like tax, financial planning, financial and business laws, and more. This is why having an entire accounting team works better than having a single employee. However, hiring a team of qualified individuals demands an investment of time. This is especially true for small business owners. While you may consider hiring a bookkeeper, you may not yet be ready to have an entire accounting team. Moreover, a single bad hire can demand additional time in re-hiring and training. By outsourcing it to a professional accounting firm, you are hiring a team of experts. These professionals have expertise in areas essential for effective accounting, offering you the best solutions at an affordable cost.
All these points highlight the importance of outsourcing your accounting. While outsourcing seems the best choice, many business owners show reluctance as they feel they might lose control over accounting operations. However, by outsourcing your accounting, you are able to take the additional load off and also stay in control at the same time.