Accounting tips and questions to ask yourself to achieve financial success in 2021
Like most years, the IRS has issued tax reform changes in the hopes of making managing a small business more profitable (or so they say). This guide will give an overview of important tips and questions to ask yourself to make sure you are ready for your small business accounting and taxes in 2020.
A company’s goal is always to be successful financially. We, like all of the others, what each year to be more profitable and successful than the previous one, and we have done so by adapting to things like the market, financial trends, and continuing to adapt to a modern accounting approach.
When clients come to us, it is usually for at least one of the following reasons:
- They are not happy with their current accounting firm
- They are growing and can no longer handle their booking, payroll, or other accounting needs on their own (AKA Stress and Time)
- They need advice on how to be smarter financially or maximize their profit
There are plenty of more specific reasons but in general, those three reasons encompass all of our clients’ needs.
We have a general outline of topics and tips we provide to all of our potential and current clients that covers everything they need to know about Accounting, taxes, and achieving maximum profitability for their small business.
This article is a complete guide to everything small businesses need to know about accounting in and tips for making smarter financial decisions 2021.
Avoid these common accounting mistakes in 2021
As a small business accounting firm, we consistently have clients that reach out in total distress because of a mistake they made (or think they made).
The number one thing our clients unanimously fear is making a financial mistake or stressing over their accounting, payroll, bookkeeping, etc.
In other words, they want to make sure their taxes – and finances as a whole – are in order.
This fear has become so consistent, we have put together a huge list of accounting and financial mistakes new and existing accounting firms make and how we advise avoiding them.
Resources related to common accounting mistakes:
- 15 Common Payroll Mistakes Small Business Make and How to Avoid Them in 2021
- 14 Accounting Facts Small Businesses Should Know in 2021
Understanding small business accounting in 2021
When it comes to running a business, there are certain words you will hear when people ask about taxes or finances in general.
To make sure your small business is set up for success and structured correctly, it is important you know exactly what type of accounting and individual financial services you need.
We have broken down common questions, terms, and many other things important factors when it comes to small business accounting in 2020, and they can be seen below:
What payroll software should my small business use in 2021?
The moment you hire your first employee, managing payroll becomes a daunting task. Luckily, there is a lot of reliable payroll software from which you can choose.
Whether you want to hire a payroll services company or manage it yourself, finding the best payroll software is vital to streamlining your financial success or making your end-of-the-year accounting as stress-free as possible.
To find out more, visit our article on The Best Payroll Software for Small Businesses in 2020
What software should my small business use to send invoices in 2021?
Another vital piece of accounting software you need to be using is reliable invoicing software.
We suggest finding something that integrates with your accounting software, but just about every tool nowadays integrates with the most commonly used accounting software like Quickbooks and Freshbooks.
We compiled a list of the best invoicing software for small businesses, freelancers and startups based on our experience and feelings when testing the software.
The find out more, visit our post on The Best Invoicing Software for Small Businesses in 2020.
Accounting and financial questions to ask/answer about your small business in 2021
Accrual or cash method; which is right for my small business in 2021?
An important step in getting your small business started off on the right foot is to determine which accounting method is best for you.
Cash Method revenue is recognized when payments are received and expenses payments are made.
Accrual Method revenue is that is recognized when the products/service are sold or delivered and expenses when products/services are bought or utilized regardless of when the money is actually received or paid.
We will have more information on accrual vs cash method accounting in a post we will publish next week.
Small Business Under-Reporting vs Over-Reporting in 2021
Another important aspect of managing a small business is whether your taxable income is Under- or Over-Reported.
Typically, under-reporting takes place when you record income solely based on the actual deposits that take place within your bank statements. Over-reporting typically takes place when an owner contributes financially (I.e. he or she deposits funds to cover the cost of payroll) and it is accidentally added to Gross Sales.
We will have an in-depth overview of Under-Reported and Over-Reported taxable income within the next week or so, so make sure you check back if you need more information on this topic.
Loaning money vs investing in my small business in 2021
Once you have a steady income and you are looking for additional ways to increase your revenue, you may ask yourself (or a financial expert) whether you should loan your money or invest it back into your small business.
Both options have their pros and cons, but there is typically a better option for you depending on several factors regarding your small business and financial situation.
Loaning your money is a relatively easy way to accrue revenue on extra money. Obviously, it is important that you have additional funds to loan to someone. If you think at some point you may need additional cash for any reason, we would suggest steering clear of loaning money.
Investing your money back into your business is great for a lot of obvious reasons. You can help your company grow, purchase new assets, expand your marketing reach, or any other internal area you think would benefit from additional budgeting. However, we have seen many companies spend/waste money on things that did not bring real value to their company, so we would advise talking to a financial consultant before making any major purchasing or investment decision.
Resources related to loaning vs investing:
Is my company a startup or a small business?
Technically, you can be both. The government does not differentiate businesses as either “Small Businesses” or “Startups”, but differentiating between the two can help you create both a financial and business plan and can also be an important term to use when marketing yourself or your business.
Companies are most often referred to as “Startups” when they are new businesses in tech industry. Most of the time, they start out as both a “small business” and a “startup”.
Companies like small mom and pop shops are typically referred to as small businesses.
Additional resources for small business accounting and taxes in 2021
