How To Be Your Own Accountant
Handling and recording your finances can be daunting. Many people choose to outsource this responsibility to an accountant or financial advisor.
However, with a little organization and knowledge, you can handle your own finances without breaking a sweat.
The beauty of doing your own bookkeeping is that you can save a lot of money. Accountants and financial advisors don’t come cheap. By doing your own finances, you can pocket that cash and use it for other things, like investing or building up your savings.
It also gives you complete control over your finances. You can make decisions about how to spend and save your money without having to answer anyone else.
All this sounds easy until you actually have to sit down and do it. How do you get started?
How to be your own accountant – Getting started
1. Understand basic accounting principles
Understanding bookkeeping and accounting terms can seem like learning a foreign language. However, it is important to understand the basic concepts to be successful.
Make sure you know what assets and liabilities are, as well as debits and credits. And get well acquainted with processes like double-entry accounting and accrual basis accounting.
Don’t be overwhelmed by everything you need to learn – It may seem like a lot, but getting it right at the very beginning forms the foundation for everything else.
A great way to start is by reading some books on the subject.
- “Financial Intelligence” by Karen Berman & Joe Knight.
- “Understanding Financial Statements” by Lyn M. Fraser & Aileen Ormiston.
- How to record transactions
- How to prepare financial statements
- How to use accounting software
- Understanding the general ledger
2. Develop a bookkeeping system
A bookkeeping system will help you keep track of your income and expenses, as well as give you a clear picture of your finances.
But before you get started, you need to understand which accounting system to use. In a nutshell, there is accrual and cash-basis accounting.
Accrual accounting is more complex and it recognizes revenue when it is earned, regardless of when the money is actually received. This method is used by most businesses but it requires a keen understanding of the whole system.
Cash-basis accounting, on the other hand, only recognizes revenue when the cash is actually received. This method is simpler and it’s often used by small businesses or businesses with a lot of cash transactions.
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Further reading: Incurred vs. Accrued in accounting – Main differences and examples
You need to develop an accounting system where you can track all your income and business expenses. You will use these entries as a basis for then compiling financial reports such as the Trial balance, General ledger and Income statement.
To start, we recommend using a simple Excel spreadsheet or a program like QuickBooks.
3. Technology is there to help – Use it!
There are a ton of great accounting software programs out there that can make your life a lot easier. Since you’re doing your own bookkeeping, it’s important to find a program that fits your needs and is easy to use.
Some of our favorites include QuickBooks, Xero, and FreshBooks. These programs can help you automate your bookkeeping, which will save you time and money in the long run.
There’s no need to do everything manually.
Programs like Envoice are simplifying the art of data entry by using AI to extract data from invoices and receipts.
Envoice is an accounting automation tool that uses OCR (optical character recognition) to extract data from invoices and receipts. This data is then exported to accounting software like QuickBooks or Xero. Envoice offers affordable packages and is a great tool for a business owner who handles their own accounting.
The best part is that Envoice is compatible with popular accounting software like QuickBooks & Xero, so you can easily export your data.
If you’re doing your own accounting, make sure to take advantage of all the great software programs out there that can help you save time and money.
4. Separate personal and business accounts
The biggest mistake you can make is to mix your personal and business finances. This will make it difficult to track your expenses and could lead to problems come tax time.
We recommend opening a separate bank account for your business and using a credit card that is specifically for business expenses. This will help you keep track of your spending and ensure that you’re not mixing personal and business funds.
Even if you draw money from your business for personal use, ensure that you document it as “DRAWINGS”.
5. File your taxes
If there is a season that every business owner dreads is the tax season. There is something about dealing with the IRS or any other tax body, that just seems so daunting.
But, it doesn’t have to be! If you keep track of your finances throughout the year, filing your taxes will be a breeze.
We recommend using a program like TurboTax or H&R Block to help you file your taxes. These programs will walk you through the process step-by-step and make it as easy as possible.
If you’re having trouble with taxes, you can always consult a certified public accountant. Remember, the goal is to get it right, not to get it done quickly.
6. Keep learning
The world of finance and accounting is constantly changing. There are new laws being passed, new technologies being developed, and new financial products being created all the time. As a result, it’s important to keep up with the latest changes.
One way to do this is to read finance and accounting blogs. There are some great bloggers out there who can provide you with the latest news, tips, and advice.
Another way to stay up-to-date is to attend conferences and seminars. These events are a great way to network with other professionals and learn about the latest changes in the industry.
Watching accounting tutorial videos or listening to accounting podcasts are also great ways of learning how to handle your business transactions and financial management by extension.
7. Hire a good accountant if need be
Sometimes, the key to business success is knowing when to ask for help.
For example, you may be expanding your business and need help with tax planning. Or, you might be having trouble staying organized and need some assistance getting your finances in order.
Whatever the case may be, don’t be afraid to reach out for help. A professional can help with getting the business structure right, organizing the sales tax, developing a payroll system, advising on the legal structure of the business, and much more.
A small business may not even need to hire big accounting firms. Some businesses may only need a part-time or freelance accountant to help with specific tasks.
The bottom line is that you shouldn’t try to do everything yourself. If you need help, don’t be afraid to ask for it.
Hiring an accountant is a big decision. But it’s a decision that can save you time, money, and headaches down the road.
Mistakes to avoid when handling your own accounting
Being disorganized can lead to missed deadlines, late payments, and lost invoices. It can make also it much harder to find important information when you need it.
You may think you don’t have time to file invoices, but it’s alot faster than spending time trying to locate them under a pile of paperwork.
Not having enough time
Running a business is a lot of work. And, if you’re already stretched thin, trying to do your own accounting on top of everything else can be daunting.
If you find yourself in this situation, it may be best to hire an accountant or bookkeeper to take care of your finances. This way, you can focus on running your business and leave the accounting to someone else.
The truth is, falling behind on your finances is actually more expensive than hiring someone to help you. Don’t believe us? Well, try missing a few payments and see your relationship with suppliers plummet as a direct result.
Failing to stay up-to-date on changes in tax laws
Tax laws are always changing. And, if you’re not keeping up with the latest changes, you could be missing out on deductions or credits that could save your business money.
Moreover, failing to comply with the latest tax laws can result in penalties and interest. So, it’s important to stay up-to-date on any changes that could impact your business.
Set aside time each week to attend to your bookkeeping. Whether it’s an hour or two, make sure you’re staying on top of your finances and keeping your books in order.
Being disciplined enough to know when to do your own financial statements can be the difference between having a thriving business or one that just barely gets by.
Not asking for help
There’s no shame in admitting that you need help. In fact, most successful businesses have someone they can rely on for financial advice.
If you’re not sure where to turn, there are a few places you can look for help, including:
- Online forums
- Social media groups
- Business networks
- Accountants or bookkeepers
Reaching out to your network of business professionals is a great way to get the help you need. And, most people are more than happy to help if they can.
Hiring an unqualified person to do your accounting
Just because someone knows how to use QuickBooks doesn’t mean they’re qualified to do your accounting.
Make sure they have the experience and qualifications you need. Otherwise, you could end up with inaccurate financial statements and a big mess on your hands.
The best way to find a qualified accountant or bookkeeper is to ask for referrals from people you trust. Or, you can search online for accounting firms that specialize in small businesses.
Choosing the wrong accounting software
When it comes to accounting software, one size does not fit all. Just because a certain software worked well for your friend’s business doesn’t mean it will work for yours.
The best way to choose accounting software is to assess your needs and then find a program that meets those needs.
There are a few things you should consider when choosing software, including:
- How many employees do you have?
- How much revenue do you generate?
- What features do you need?
- How much you’re willing to spend?
If you’re not sure which software is right for your business, it’s best to consult with an accountant or bookkeeper. They’ll be able to recommend a program that meets your specific needs.
DIY accounting can be a daunting task. But if you take the time to get a good foundation in accounting principles, stay organized and have a consistent schedule, there’s no reason why you can’t be successful.
The most important part is doing it right from the get-go. So, if you’re not sure where to start, be sure to reach out to your network of business professionals for help. And, if all else fails, consult with an accountant or bookkeeper to get the help you need.
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