Success for small businesses and startups alike depends on effective financial management and having someone dedicated to that process.
Following accounting best practices and employing or outsourcing a specialist in this area might help avoid the cash flow problems that are the cause of many company failures.
Additionally, these best practices can show the way to insights that can promote the expansion of small businesses.
Furthermore, for any small business, payroll can be a difficult chore, but with the correct tools, it can become simple and normal. To maintain the happiness of both you and your employees, you can adhere to a variety of payroll management best practices.
Payroll and Accounting Advice for Small Business Owners
The majority of small business owners do not work as accountants. The good news is that accounting for small businesses is quite easy.
Payroll and accounting for small businesses can be challenging for anyone with any level of business experience. Here are some tips from the accounting experts at Akif CPA to take help from.
Separate Business and Personal Expenses
Your bookkeeper will have a lot fewer transactions to sort and reconcile if you exclude any personal transactions from your business accounts.
Sorting through personal transactions takes time, costs money, and might be inaccurate. Although the ultimate goal should be to keep professional and personal costs fully separate when using your credit cards and bank accounts.
Work with an Accountant or Bookkeeper
Another decision you should make as soon as possible is whether to handle your own “books” and taxes or hire a pro to do so.
Many small business owners attempt to serve as both an accountant and a bookkeeper. But let’s be honest—don’t you already have enough on your plate?
It is preferable to have a professional accountant do these tasks because they are more likely to be knowledgeable about reducing your tax burden than you are as a business owner.
Comply with Payroll Laws
Payroll laws at the federal, state, and local levels should also be known. Create a method to make sure you’re abiding by these regulations and remaining informed of any new developments in payroll administration.
As you add additional employees with a variety of benefits and employment classifications, this task may get increasingly difficult. Utilize payroll and HR software that handles both functions to lessen the possibility of costly legal penalties.
Start using a Bookkeeping Software
Accounting software streamlines manual bookkeeping procedures that are time-consuming and prone to error. It also makes it simpler to locate the data needed to prepare financial accounts.
You can manage and issue payroll with systems integrated into accounting and even HR software, but most business owners are happy with Quickbooks. Plus, your accountant can manage payroll for you through programs like Quickbooks.
Make a Careful Decision between Hourly Pay and Salaries
When you pay your employees a salary, you can handle your payroll considerably more easily because they are always paid the same amount.
However, it might not make sense for your company’s operating system or the kind of work that your employees conduct.
Paying personnel by the hour is more complicated since you must keep track of how many hours they have worked and then figure out how much they should be paid each pay period.
You may consider 1099 and w-9 forms to file while dealing with employers and freelancers who you hire on an hourly basis.
Following are some of the differences in both the forms:
| Category | Form W9 | 1099 |
| File for | Information about the contractor | Information about the contractors’ total earnings |
| Used by | Freelances & Contractors | Employers & Businesses |
| Filed to the IRS | No | Yes |
We also recommend reading the following conditions by the IRS to classify workers as employees or independent contractors.
These detail may sometimes appear complex to understand since everyone’s conditions vary based on their financial records. We would highly recommend talking with a tax consultant in such cases.
Establish a Payroll Budget
Payroll costs will increase in tandem with the expansion of your organization. You must decide on your projected budget, which is crucial.
The Medicare and Social Security taxes deducted from employee wages must be matched by the business owner. You might also be required to pay additional employment taxes, depending on the location where your firm operates.
Following are some of the Security and Medical Taxes that you may need to account for:
- For individuals, the total tax for each pay period is 15.53% – half paid by the employee and the half paid by the employer.
- Both (employer and employee) pay 6.2% for social security with a wage base limit of $147,000.
- Both (employer and employee) pay 1.45% for medicare with no limit.
You must also account for variable costs, such as commissions and benefits that may be connected to your payroll as well as time and attendance software, in addition to fixed expenditures, such as these.
Set aside some time to discuss your budget with your accountant, and try to keep your costs as low as you can. Your profit margin will be bigger the smaller your payroll costs are.
Monitor Tax Preparation
In general, the IRS mandates estimated tax payments from sole proprietors, partners, and S corporation owners if they anticipate owing $1,000 or more in taxes when their return is filed.
You may maintain particular employment tax records; more information is available in the IRS’s materials on recordkeeping for employers and the Employer’s Tax Guide.
To assist in calculating estimated tax, the IRS offers worksheets in Forms 1040-ES, Estimated Tax for Individuals, or Forms 1120-W, Estimated Tax for Corporations. Additionally, companies want to look at the IRS tax calendar.
The tax calendar lists tasks and deadlines for each month. A company can subscribe to reminder emails or even import reminders into Outlook.
Always Get a Receipt
While the IRS does demand receipts for all tax deductions, bookkeeping systems do not rely on them to identify transactions.
Keeping paper receipts in file folders for each vendor is a traditional way to keep track of receipts.
Scanning receipts and adding an electronic copy of the receipt to the transaction in your bookkeeping software is a more recent technique.
This useful feature is offered by many accounting applications without charge. Apps that scan, read, and arrange receipts for you are also available.
Consult a CPA
One-third of small firms are claimed to report devoting more than 40 hours a year to paying federal taxes. The fact that about two-thirds of small businesses pay an outside tax expert or accountant to manage their taxes is not unexpected.
Moreover, falsely claiming tax deductions may result in penalties as well. We’d highly recommend consulting with a tax professional so that your payroll and accounting practices are aligned with the best taxation processes.
It is also important to note that for a sole owner, there are even more advantages because you may deduct the expense of employing a tax professional to prepare your company’s tax return.
Categorize your Expenses
Regular check-ins are the greatest approach to maintaining your receipts and spending. Thus, you can avoid doing your taxes during tax season and discovering that you need to locate supporting papers from months ago.
Purchase colored folders to hold your receipts and other documentation so that you can quickly locate the paperwork you require later.
To make sure all of your deductions are recorded, sort any fresh receipts from the previous month into the appropriate folder (as well as looking for any that may have gotten “lost” in your wallet or baggage).
With the help of this system, you may organize and store your documentation while avoiding feeling overburdened at tax time.
Additionally, it allows you to put pertinent comments on your receipts while the information is still fresh in your mind, such as which customer you met at the soon-to-be-deducted power lunch.
Conclusion
Small businesses and startups can boost their chances of success by taking steps to set up reliable accounting and payroll procedures from the outset.
According to studies, a small business’s financial health improves the more frequently it reviews its financial data, which should ultimately contribute to long-term success. A great firm is built on a solid foundation, which can be achieved by learning the fundamentals of employee payroll.
By using your best practices, you not only learn how to work effectively within your budget but also draw in the greatest personnel nationwide.
Make the most of your company’s potential for growth by adhering to our list of professional employee payroll and accounting suggestions given above.
