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Training 06 -  Budgeting/Accounting

Initial Budget

You will need money to rent space, pay for technology, inventory and fixtures. You will also need reserves for ongoing expenses. Don’t assume that that you will have enough cash flow in your first month to cover your ongoing expenses. How much will you need? It’s important to get a handle on your financial needs as soon possible.


Prepare your budget by creating a basic spreadsheet of your expenses, you can use a date sheet like the one below to get a quick idea of the capital that you will need. You will be able to edit and adjust things as you go. Do not move forward without a clear grasp on the capital that you will need. If doing a build out, allow 30% cushion to cover unexpected and unforeseen expenses. Running out of working capital is the most common way to put a stop to your business dream.

Down load a budget worksheet



Accurate, timely record-keeping is critical to the survival of a Shop’s, for these reasons:

  • You can see the volume of business and compare it to previous years.

  • You can compare cash to credit sales.

  • You can see outstanding accounts receivable.

  • You can see profit levels by department or types of goods or services. This helps you avoid losses by discontinuing unprofitable lines if needed.

  • You can see obligations before they come up, and plan for available cash.

  • You can order supplies at the right time.

  • You can account for items removed from inventory for non-use reasons, e.g. personal use, expiration, damage, etc.

  • You can attend to payroll.


Payroll is one of the largest expenses. Plus, payroll records must meet IRS, state and local taxation requirements, as well as:

  • Workers' compensation laws

  • Wage and hour laws

  • Social security requirements

  • Unemployment insurance requirements


The Shop’s is required to provide annual reports and summaries. Further, you must provide employees with the W-2 forms needed to file their own income tax returns.


Records allow for a projection of available cash to pay invoices as they become due. Sometimes this results in discounts from suppliers for prompt payment (2% is common when you pay in full within ten days), a potentially substantial savings. The savings will add up!


Records allow you to compare actual performance with budget projections, as well as the projections of competitors.


The following criteria are essential to a good record-keeping system:

  • Simplicity

  • Accuracy

  • Timeliness

  • Consistency

  • Understandability

  • Reliability and completeness


Payroll and Taxes


The IRS requires you to withhold Federal income tax and Social Security (FICA) for employees. You will have to submit payments to the IRS at least quarterly. Your records and reporting system will make that process both accurate and timely.


Employees will fill out a W-4 with filing status and exemptions; this allows your accounting software of provider to compute withholding and deductions for each pay period.


The Employee Quarterly Federal Tax Return, IRS Form 941, can be filled out automatically by your software, and will total accumulated withholdings. If the total for a month is greater than $500, that amount must be deposited in an IRS-authorized financial institution by the 15th of the following month. If the total exceeds $3000, you only have three business days. If you overpay, the overpayment is refunded on a quarterly basis.


At the end of the year, you not only submit withholdings for the quarter, but you must also prepare W-2 forms for each employee and the IRS. Your software or service provider could also do this automatically. The W-2 documents total earnings and withholdings.


Because the IRS will neither bill you nor notify you if a payment is late, you could easily fall behind. If you do, there will be penalties and interest accumulated that could hinder your growth and even force you to close the Shop’s.


  • Is it used regularly, or is it kept on stand-by or as a back-up, or even a spare?

  • Serial number

  • Date of purchase

  • Cost


Accounting Service Providers


You can keep the books yourself (most likely assigning the job to the Office Manager and using Company-recommended software) or hire a full- or part-time bookkeeper or accountant, or some combination of those two choices.


At the very least, you should hire an accountant to do the final year-end preparations and to advise you. You should also remain familiar with your books and participate in the record-keeping process. This will optimize the service provider’s effectiveness and yours as well.


If you hire a service provider, you’ll want one that will work closely with your business, as does the example above, share information openly to develop a successful relationship. You may need to compare several different services in their experience with small business accounting, as well as in any specialized knowledge required in your business.


Your service provider should be, or include, a certified public accountant (CPA), or an accredited accountant, but initially you may want to just start with a Bookkeeper.


Certified Public Accountant (CPA): A person who has passed the American Institute of CPAs national examination, which tests an individual's ability in accounting, auditing, law and related areas.


Enrolled Agent (EA): An individual who has passed a two-day exam prepared by the IRS covering many areas of federal taxation. This person is generally considered a tax specialist.


Accredited Accountant: An individual who has passed a rigorous examination prepared by the Accreditation Council of Accountancy and Taxation, a national accounting accreditation board affiliated with the National Society of Public Accountants and the College for Financial Planning in Denver, Colorado. Accredited accountants specialize in small business accounting.

Bookkeeper:  A bookkeeper can assist you by going over your bank accounts and checks written and bills paid each month. This is the best place to start and you will move on from here.  


You’ll weigh the cost of the service against its benefits. You will often find that professional advice will increase profits to more than cover the expense. Plus, regular services from an accounting firm will enhance the provider’s experience with your business, making that professional advice even more valuable as the business grows.


The accountant does more than bookkeeping:

  • Advise you on financial management

  • Assistance with cash flow and budget forecasts

  • Assistance with business borrowing

  • Assistance with legal structures

  • Tax preparation and advice

  • Cash projections for operating periods

  • Inventory projections for operating periods

  • Lease v. purchase decisions

  • Projections of accounts in arrears or excess spending

  • Projections of loan needs; assistance in securing loans* (e.g. collateral, debt obligations, how cash will be used, term of the loan, repayment, etc.)


Daily Accounting


  • Cash balance on hand

  • Bank balances

  • Sales and cash receipts

  • Collection problems

  • Cash (or checks) flowing out


Weekly Accounting


  • Accounts receivable (special attention to customers paying slowly or behind on payments)

  • Accounts payable (special attention to discount periods)

  • Payroll (special attention to overtime, absenteeism, etc.)

  • Taxes (special attention to due dates and reporting requirements)


Monthly Accounting


  • If you engage an outside accounting service, provide records of receipts, disbursements, bank accounts and journals to the accounting firm. This will allow the firm to maintain good records and present them to you for review, consideration and support in decision making.

  • Make sure that income statements are available on a monthly basis, and certainly within 15 days of the close of the month. Review a balance sheet that indicates the balance of business assets and the total current liability.

  • Reconcile your bank account each month so that any variations are recognized, and necessary adjustments made.

  • Balance the petty cash account on a monthly basis. If you allow this account to extend for a longer period, it may create substantial problems.

  • Review federal tax requirements and make deposits

  • Review and age accounts receivable so that slow and bad accounts are recognized and handled.

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