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Commercial Accounting: 7 Helpful Tips You Need to Know Before Starting Your Business

Oct 28, 2022 | Business, UK Accounting

7 Must-Know Helpful Commercial Accounting Tips Before Starting a Business

Not everyone is built to be an entrepreneur—the most successful ones begin their business with a unique idea for a product or service. While you may have one great enough to start yours, failing to understand your company’s finances may stunt growth or, worse, lead to closure.

Fortunately, you can prevent such scenarios by familiarising yourself with the mundane and intimidating task of accounting. This article tackles invaluable insights a budding entrepreneur should know before setting up shop.

1. Understanding What Accounting Essentially Is

Commercial accounting sounds daunting, but it doesn’t have to be if you know its meaning. By definition, it is recording the financial transactions of a business. It also includes summarising accounts and analysing statements to determine a business’s financial health.

Proper commercial accounting gives you the necessary information to make short- and long-term strategic decisions. Moreover, it provides an accurate snapshot of your company’s performance and condition to investors, lenders, and government agencies.

Commercial Accounting
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2. Keeping Track of Your Income and Expenses

Your primary goal in beginning a business is to earn. The best way to know you’re on track is to record every income from products sold or services rendered. Keep copies of issued receipts and sales invoices, then tally these to get a running balance.

Do the same to your expenses or costs incurred in operating your business. When you pay a utility bill or settle outstanding balances from your supplier, file away the pertinent document and record the transaction in a logbook or software.

Since income is the basis of your taxes, you must maintain records for six years, according to the HMRC. Only once this period lapses is it safe to toss out those documents.  

3. Knowing Your Assets, Liabilities, and Equity

Besides income and expenses, commercial accounting also entails monitoring your business’s assets, liabilities, and equity. Simply put, assets include cash for the company, equipment, inventory, and other resources essential to running a successful operation. 

Liabilities, on the hand, pertain to what you owe—unpaid balances from suppliers, bank loans, and other forms of debt. Equity is your investment in the business and accumulated earnings from previous years.

One important equation to remember is Assets = Liabilities + Equity. It means your assets are funded by borrowings, investments, or both. Create a balance sheet to see whether you depend heavily on debt to keep your business going.

Borrowing is an acceptable business practice—only when done prudently. Moreover, lenders tend to be more averse to extending credit to heavily indebted companies, even those deemed profitable.  

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4. Monitoring Cash Flow

Another crucial commercial accounting know-how is looking at your cash flow. When doing business, keep in mind that money constantly moves in and out of your company. For instance, selling goods suggests cash is coming in, while purchasing supplies indicates an outflow of funds.

It’s easy to monitor how much money you have if you’re selling and buying on a cash basis—no credit transactions. However, such isn’t always the case, as you’ll sometimes need to purchase or make a sale on credit.

If you offer credit terms to your customers, mind how much of your sales are receivables. Whenever possible, keep this portion minimal to ensure you have enough funds to sustain operations. And if your suppliers allow credit or discounts, take advantage of these to optimise your cash flow.

A cashflow statement will keep track of your business’s operating, financing, and investing activities. It can be confusing to create one, but you can start by noting which of your revenues are already paid and how much of your inventory requires settling.

If you want to understand your cash flow further, consider hiring an accountant—such as one from Sterlinx Global—to do your books. They will help you determine how long your receivables and payables are and whether there’s a significant mismatch in terms.  

5. Having a Different Bank Account for Your Business

When doing business, it’s vital to have a bank account that you can quickly monitor and easily access. It’s also important that this account is used solely for company operations.

By segregating business from personal transactions, you’ll have a better grasp of your finances, besides less complicated commercial accounting. You can see where funds come from and are used—you don’t have to be confused about which portion of the money is for your personal spending or business.

Besides offering protection, opening a separate bank account sometimes offers perks particular to business clients. If you need further convincing, it is easier to obtain loans to cover funding gaps.

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6. Being Familiar with Tax Regulations

One of the most significant commercial accounting information a budding entrepreneur such as yourself should know is taxation.

Taxes are part and parcel of doing business—no one is exempt from paying them. Different regulations apply to specific industries, location, and products, so you must know what applies to your company.

For example, when you plan to sell goods on Amazon or other online marketplaces, you have to pay sales tax based on where your customer is from.

If you’re still unsure of the taxes specific to your business, consult a professional such as an accountant from Sterlinx Global.

7. Settling Taxes

Once you know the taxes you should be complying with, you should plan for these ahead. Since sales tax is collected from your buyers, make sure you set this aside for future remittance to the government. If your sales exceed the VAT threshold, you have to pay the bill to HMRC. 

Income tax, on the other hand, cannot be passed down to your customers. However, there are ways to ensure you’re not overpaying. One is by thoroughly accounting your business expenses. 

Remember that paying the right taxes involves filing the correct returns, which involves proper commercial accounting. A professional will be a big help to new business owners like you.

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Frequently Asked Questions

  • Can I handle my own accounting?

    Yes, you can, especially if you already know the basics. However, if you need external funding—through investors or lenders—they might require a copy of audited financial statements, often prepared by a qualified accountant.

    But during the early stages of company formation, consider outsourcing commercial accounting to a professional. This allows you to focus on strategizing rather than recordkeeping.  

  • How do I find an accountant?

    You can begin your search online. Be sure to look for a professional specializing in your industry. If you’re in trading, hire someone familiar with your business nature and its related tax regulations.

    Another alternative is to ask for referrals from fellow business owners. It’s possible that they already have one onboard who can help you.

  • Do I still need to understand commercial accounting if I have an accountant?

    Yes, you do. While your accountant will record transactions and prepare the statements, they will only work with the information you’ve provided. If you don’t have a basic understanding of commercial accounting, chances are you’ll give them inaccurate figures.

    Working with incorrect numbers prevents you from producing reliable forecasts and planning the right strategies. Remember—failing to plan is planning to fail.

Conclusion

Starting a business takes more than just a brilliant idea—you have to understand a few things about commercial accounting to ensure long-term sustainability and growth. The above tips will help you, but it also pays to work with a trusted accountant from Sterlinx Global.

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