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Accounting Basics for Small Businesses

If you are starting a new business, we can guide you through the process, from setting up your business, choosing a name to producing accounting reports for your year end.
Managing your small business accounts properly is vital to help your company prosper. From basic accounting principles to the importance of accounting to being tax efficient and managing your cash flow. We even provide free accounting software and Microsoft Excel bookkeeping templates, giving you the accounting resources you need to achieve success.

Small business entrepreneurs have different options available to them when it comes to performing accounting tasks. Aside from managing the accounting function themselves, entrepreneurs can choose to partner with an experienced accountant to handle financial matters, hire an accounting team to oversee financial functions or contract with a third-party accounting services firm. Going with an accountant or an accounting firm each carries distinct advantages and disadvantages to consider before you make a final decision.

Consequently, a number of small business owners decide to hire an accountant to handle their business finances rather than do it in house. But small business owners can reduce the cost of keeping their books by doing the job themselves and, as a result, become more intimately aware of their business costs.

Why is the basics of accounting so important?
Keeping abreast of the business accounting basics may sound a bore, but it is vital to keep abreast of the financial position of your small business.
So many businesses fail because they miss this vital point of accounting basics. Whether it is ensuring that customers are paying on time or forecasting how much cash you're business is going to have in six months time, having a good accounting system in place is the strong foundation that will allow your small business to succeed.

Book keeping Basics
Completing everyday transactions is part of  bookkeeping basics. Bookkeeping basics covers credit control, sales invoicing, reconciling bank accounts, writing cheques, posting receipts, producing profit and loss accounts, and maintaining the balance sheet. Every small business needs to complete their bookkeeping basics on a regular basis so that the correct accounting reports can be produced.

Small Business Bookkeeping tasks
There are many small business tasks which need to be completed for business bookkeeping. We have produced a list of task needed for good accounting practice.
• Bank Reconciliation
• Credit Control
• Depreciation Accounting
• Fixed Asset
• Petty Cash
• Purchase Invoice
• Sales Invoice
• Stock control

The basics of self employed financial accounts
If you are self employed you will still need to produce accounting records once per year, although these need not be as comprehensive as company accounts. You will use this information to complete your self-assessment tax return. If you are self employed it is worthwhile setting your financial year end to the 31st December, in line with the nominal tax year. This makes it much easier when completing your tax return and can save money when you are using an external accountant or bookkeeper to maintain your accounts.

How often does bookkeeping need to be completed?
Decide how often you require your small business bookkeeping and accounting records. It may be that you prefer to do little andoften, maybe each day set aside some time to ensure that your small business bookkeeping basics records are up to date. A simple five minutes each day can be a lot easier to manage than half a day of headache at the end of each month.
If you are VAT registered, your business will need to provide sales and purchase history when the VAT return is to be completed.
Your bookkeeping will be used to provide business accounting basics reports - Financial accounts and management accounts. These accounts will help both you and other people make financial decisions regarding your business. The more up-to-date your books are the better handle you will have on your business.

Small Business Bookkeeping Basics
Bookkeeping basics is at the centre of all your small business accounting reports. Without the basic bookkeeping you will not be able to keep control of your business finances and produce useful management reports. There are two different types of accounts you can use, these are single entry bookkeeping and double entry bookkeeping.

Bookkeeping Basics - why is it so important?
It is easy to forget to complete bookkeeping basics whilst you are so concerned about getting the sales and delivering the goods or services on time. But it is important. If you do not keep your basics of small business bookkeeping up to date you may miss invoicing a customer, forget to chase up payment from a customer or end up paying bank charges if you go overdrawn. And remember, whether you are self employed or a company, it is a legal requirement to keep accounting records and store them for a minimum of five years.

Step One: Gain the Knowledge
The financial matters you will confront in your own business are little different than those of large corporations. Financial tools, coupled with an understanding of how to use them, will assist you in the proper management of your business. Without this understanding and without a dedicated commitment to using financial tools, you reduce your chances of success. Your business will be judged by the classic financial measures: the balance sheet, the profit and loss statement, and the cash flow statement. These three measurements will define the financial health of your company. In this session you will learn how: The balance sheet tells how much the business is worth.
The profit and loss statement tells if your business is profitable or not.
The cash flow statement predicts your cash balances into the future.
As a business owner, you need to feel comfortable with the values portrayed by each measurement.
You will also need to gain knowledge of accounting in order to evaluate your competitors or businesses you might wish to acquire. The best source to learn about your most successful and publicly owned competitors is to read their annual reports, this can be obtained from MFSA at a nominal charge. You will need to understand accounting to draw intelligent conclusions.

Step Two: Select an Accountant
At present, there are no national certification standards for bookkeepers like there are for CPAs. So, it may be best to look for referrals when selecting a bookkeeper. Many CPAs will refer you to people they have confidence in to help you with your accounting needs. Bookkeepers range from those who only pay bills or process receipts to "full charge" bookkeepers who can summarise bookkeeping activity for your CPA to prepare tax returns.
You will need to determine what accounting software program will work best for your business and your accountant can help decide this. Some good ways to determine this:
• Ask others in your industry whose judgments you trust about their experience with software.
• Look for ads in trade magazines for software and visit booths at industry trade shows for ideas.
• In Malta the most used accounting software is Sage Line 50.

Ways that your accountant can help in dealing with your bank:
Sooner or later, you will need financing in addition to your start-up sources. It is important to establish banking relations before future needs arise. Your accountant can help you:
• Prepare cash flow control statements that will estimate what the cash needs of the business will be in months to come.
• Prepare a personal financial statement, including a balance sheet of your personal assets and liabilities along with a statement of income and expenses showing how much cash flow you generate each month. Banks will usually require a personal guarantee.
• Locate a bank. This can be helpful because the bank has had prior dealings with the accountant.
• Polish your business plan for your bank.
• Organise as much information as possible including financial statements in a neat and orderly fashion.





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