If you are a small business owner, you might not consider tasks such as invoice preparation, tax compliance, or cash flow management, which are typically associated with accountants.
However, if you earn an average of $70,300 per year, you can manage them on your own.
On the other hand, for medium to large barber businesses, these tasks may become too time-consuming, and hence, an accounting firm’s services may be necessary.
In this article, we will explore all the options available to barbers and their average costs.
What is accounting for barbers?
it is the process of recording and summarizing financial data to maintain a healthy financial position and comply with GAAP guidelines. This includes bookkeeping, tax preparation, ensuring financial statements’ accuracy, and reporting.
Although most small business owners are well-versed in bookkeeping and accounting, they might lack a deep understanding of financial ideas and processes. Without a fundamental understanding of accounting concepts, it is challenging to make financial decisions.
A study from 2011 shows that effective accounting methods for barbers provide benefits that are more than 30 times their costs in terms of efficiency, cost savings, and accuracy.
Thus, financial literacy could assist business owners in managing their money, recording transactions, and meeting tax requirements.
We will now discuss the six fundamental accounting practices required to manage finances effectively.
How to do accounting for barbers in 6 steps
We’ll go through each step, so you can learn the fundamental accounting practices required to effectively manage your finances.
Choose the most suitable accounting software
The first step is to choose the most suitable accounting software. This tool aids business owners and accountants in recording transactions, processing invoices and bills, creating an accounting chart of accounts, producing monthly financial statements, and more.
Studies have shown that businesses using accounting software is more lucrative and have better cash flow. It also saves 34% of the time on accounting duties.
Our specialists recommend Zoho Books and QuickBooks as accounting software options that meet the demands of barbers.
Make entries in your software
After purchasing the software, the next step is to make entries in your software. It involves recording every business transaction and income, which the software uses to compute profit and generate financial statements.
For example, if you pay rent and salary every month, recording them as recurring costs will save you time. You also need to produce an invoice for each client to record their income.
The accounting software displays a chart of accounts to provide an overview of your company’s financial situation. Make sure you record every transaction as soon as possible to ensure the records’ accuracy.
Keep track of the cost of goods sold (COGS)
It is also crucial to keep track of the cost of goods sold (COGS). COGS is a metric used to determine the entire cost of inventories sold by a business.
It calculates actual expenses to offer a more accurate assessment of a company’s financial performance. The formula for COGS is Beginning Inventory + Purchases – Ending Inventory.
When you add products or services to the accounting system, it calculates COGS based on the invoices you make. You should calculate the COGS of the barber service based on the package, including wages and other expenditures.
Make a chart of accounts for proper bookkeeping
Finally, creating a chart of accounts for proper bookkeeping is essential. The chart of accounts is the account that the business utilizes to record financial information in an understandable manner.
It aids in the calculation of taxes, preparation of financial statements, and decision-making. Overall, effective accounting practices are vital to ensure the financial health of your business.
Accounts in each category include the following:
- Revenue: barber services revenue, rental income, etc.
- Costs of Goods Sold: hair cut supplies, labor costs, etc.
- Operating Expenses: Advertising, rent, utilities, etc.
- Assets: Cash, accounts receivable, inventory, etc.
- Liabilities: Accounts payable, loans, etc. Equity: Retained earnings, capital contributions, etc.
Automate the accounting process to save time
Automation of accounting processes involves using software to automate manual tasks such as payroll, invoicing, financial reconciliation, and budgeting.
By automating accounting processes, organizations can save up to 4.8 hours per week, and companies can save up to 50% of the time required to handle bills manually.
To establish automated processes, you need to select an all-in-one accounting program and set up automated triggers.
Hire an accountant
Hiring an accountant may be an excellent way to save time and money in the long run. They can help you adhere to tax regulations, maximize tax benefits, and focus more on managing your business.
Moreover, hiring an accountant can help you avoid errors and penalties that could end up costing you money.
For barbers who don’t have time for accounting tasks and to ensure bookkeeping accuracy, it’s recommended that they hire an accountant.
Best accounting agencies for barbers
For medium to large-sized barbers, hiring an accounting agency would be a better option. There are several excellent agencies to consider, such as 1-800 Accounting Agency, Accotax Accounting Agency, and CSI Accounting Agency.
1-800 Accounting Agency
1-800Accountant is an accounting agency based in New York. 1-800Accountant specializes in working with small businesses. It offers services starting from $0 to $375/month, which is quite affordable.
It has a 4.7-star rating on Trustpilot, a 4.2-star rating on Google my business, and a 3.5-star rating on Books time.
Accotax Accounting Agency
Accotax is an accounting agency based in London that works internationally with small businesses, partnerships, and other business types. Accotax’s pricing is perfect for startups and self-employed as it ranges from $265 to $600/month on average.
It has a 4.9-star rating on Google My Business, a 4.7-star rating on Facebook, and a 4.9-star rating on Trust Index.
CSI Accounting Agency
CSI Accounting is an accounting agency that was founded in the early 1960s by Al Clausnitzer, specializing in bookkeeping, consulting, and tax services for small businesses. It works with small or medium-sized businesses.
It has a 4.9-star rating on Google My Business, 4.6 on Facebook, and a 4.5-star rating on Yelp.
Best 5 Accounting Tips For barbers
1-Use accrual-based accounting to record transactions
2-Understand basic tax requirements
3-Keep your business bills
4-Reconcile your transactions
5-Create a business bank account
Record transactions using accrual-based accounting
Accrual-based accounting records transactions as they occur, providing a more realistic picture of financial performance, even if no money was spent at the time.
This type of accounting also helps identify trends in income and expenses across different periods, allowing businesses to plan with realistic expectations.
Finally, it ensures compliance with Generally Accepted Accounting Principles (GAAP), which are important standards used throughout the world’s economy.
For instance, even if no money was spent at the time, the expenditure would still be recorded right away if you purchased advertising on credit with a 30-day payment term.
Another benefit to accrual-based accounting is its ability to help identify trends in income and expenses across different periods, so businesses can plan accordingly with realistic expectations regarding their expected costs and profits.
Understand basic tax r
When it comes to taxes, it’s essential to know what forms need to be filled out and any potential credits or deductions that could lower your total tax bill. Businesses typically use documents like the 990T and 1120S (for S-corporations) for tax-exempt organizations.
To minimize your tax bill, don’t forget to include common deductions like mortgage interest payments, charity contributions, medical costs, state and local income taxes, and student loan interest payments. Popular credits include child care expenses and the earned income credit.
It’s also critical to record all sources of taxable income, such as self-employment income, dividends from investments, capital gains from equities, and profits and losses from mutual funds. Failure to do so could result in underpayment penalties if discovered during an IRS audit.
Finally, keep in mind that each state has its unique tax laws, so it’s important to take them into consideration before filing your tax returns by the end of the April deadline.
Keep your business bills
Keeping track of all your business bills can be overwhelming, but it’s necessary to keep your operations running smoothly.
One way to manage your incoming bills is to set up an online payment system like Melio, which can help you pay bills quickly and easily. Automating payments and setting reminders will save you time and reduce clutter.
Reconcile your transactions
Reconciling your financial records regularly is another critical step in maintaining accurate and up-to-date financial records.
This involves gathering all relevant documentation, entering each transaction into your accounting software, and cross-checking entries with invoices and receipts. If inconsistencies are found, they must be investigated and fixed promptly.
Create a business bank account
Creating a business bank account is also crucial for managing your finances as a business owner. Having a separate account will help you track your income and expenses and ensure that your taxes are paid correctly.
It also protects you from personal liability if your business experiences financial difficulties. It’s simple to open a business bank account, but there are a few crucial measures to take into mind first:
1. Choose whether your company will be a corporation, partnership, or single proprietorship because this will effect how you create the account.
2. Compare several banks to find out which one best suits your needs.
3. Compile all required paperwork, such as articles of incorporation or DBA forms and identification documents.
4. Deposit money into the new accounts to enable rapid activation.
Accounting for barbers FAQ
How frequently should I check my books and financial records to ensure their accuracy and correctness?
When it comes to accounting for a barber business, it’s important to evaluate your financial records at least once a month to ensure accuracy.. In order for transactions to display appropriately in reports like profit and loss statements or accounts receivable and payable summaries, it is also crucial to ensure that all transactions have been accurately documented.
If your company offers new services or if specific components of it change quickly, you might need to do evaluations more frequently.
Weekly reviews may be required for higher accuracy when tracking changes over time throughout the year if there are significant monthly revenue differences (such as seasonality).
What taxes must I pay in order to operate my barber business?
You’ll need to pay sales taxes and employer payroll taxes, among other taxes, so it’s crucial to seek the advice of an accountant to clarify any special requirements based on your state’s laws.
Overall, effective bookkeeping practices require ongoing oversight to keep your business in compliance with laws and track key performance indicators over time.