Step-by-step Guide On How To Do Bookkeeping for Social Media Agency / SMMA For USA Companies
The world of social media marketing has exploded in recent years, with experts anticipating the industry will rake in over $255.8 billion by 2028. Social media agencies that handle marketing on platforms like Facebook, Twitter, and Instagram have driven this expansion, helping businesses cultivate their online presence and boost sales.
However, with such rapid growth arrives the necessity for meticulous fiscal oversight, rendering accounts receivable an indispensable chore for SMMA owners. Precise bookkeeping ensures your agency stays lucrative and keeps you compliant with Internal Revenue Service statutes, lowering the hazard of penalties or audits.
This manual delves into the steps you must undertake to maintain accurate and lawful financial records for your social media marketing agency in the US.
Step 1: Understand the Basic Accounting Principles
While we will get into the particulars of bookkeeping in a moment, certain basic accounting principles inform how you keep records. The following accounting methods are the most applicable for social media agencies:
Accrual Accounting: Gains and expenses are recorded when they occur, not necessarily when cash is received or paid. The IRS usually requires this method for companies that store items or make a gross revenue of more than $25 million each year.
Cash Basis Accounting: Profits and expenses are recognized only when cash is received or paid. This can be a simple way for smaller agencies wanting to serve individual needs without cabling multiple systems together.
The method for accounting that you choose will be based on how big your agency is and the degree of financial complexity. For instance, many SMMA owners will do cash-based accounting because it is simpler.
Step 2: Create Your Chart of Accounts
The COA serves as the foundation of a bookkeeper's work. It is a setup of all your accounts that records your agency's transactions. It structures how you look at your financial operations. As a social media agency, your COA will have accounts like:
Income Accounts: Client payments, ad management fees, consulting services, etc.
Expense Accounts: Software subscriptions, advertising expenses, payroll, office supplies, etc.
Asset Accounts: Bank accounts, accounts receivable, equipment, etc.
Liability Accounts: Credit cards, bank loans, accounts payable, etc.
Equity Accounts: Owner's equity, retained earnings, etc.
Each account will get its unique number for a structured line-up. This structure is crucial to track the agency's financial maneuvering. It also binds each transaction to its proper place and facilitates making any financial or tax report.
Step 3: Maintain Accurate Records of Income and Expenses
For SMMA owners, income frequently stems from diverse avenues, including retainer arrangements, solitary endeavors, and performance-based commissions. It is imperative to meticulously log every cent earned and every cent spent. Consider the following:
Client Invoicing: Employ a trustworthy invoicing mechanism to track client installments. Software like QuickBooks or Xero can automatically generate invoices and monitor when installments are obtained. Always submit invoices promptly and follow up on any overdue installments. Furthermore, proactively contact clients to ensure prompt payment and build strong working relationships.
Expense Tracking: Maintain comprehensive records of all outlays, including receipts for tax applications. Tools such as Expensify or Receipt Bank can facilitate digitizing and categorizing your costs in real time. Beyond mere tracking, analyze spending patterns to optimize budgets and maximize efficiencies.
Bank Reconciliation: Regularly match your bank statements with your accounting ledgers to ensure precision. This method involves contrasting your bank statement with your internal records to identify inconsistencies, such as missing transactions or erroneous entries. Pay close attention to reconciliations and resolve discrepancies immediately to avoid issues down the road.
Step 4: Comply with US Tax Laws
Bookkeeping for an SMMA in the US requires careful compliance with tax laws to avoid penalties and stay in good standing. Here are some crucial considerations:
Taxes collected vary significantly depending on the services offered and clients' locations. Social media agencies usually don't charge sales tax, but verifying each state's rules is important.
The progressive US tax system means higher earnings face steeper rates. Self-employment tax covers Social Security and Medicare at 15.3% for sole proprietors and partners.
To dodge penalties, those anticipating over $1,000 in taxes must make quarterly estimate payments based on projected income versus expenses. Compliance is ensured through paperwork like 1099-NEC forms for contractors paid over $600 annually.
Proper bookkeeping involves balancing multiple obligations around an ever-changing tax code. By tracking requirements in their context, agencies can fulfill their duties while keeping their work as the priority.
Step 5: Prepare Financial Statements Regularly
Financial statements provide key insights into an agency's fiscal fitness and are indispensable for informed strategic choices. The three principal monetary charts you ought to craft are:
Income Statement: This illustrates an agency's income, costs, and gains over a specific period. This record helps identify how rewarding an agency is and where expenditures may need to be lowered or profits increased.
Balance Sheet: This provides a rundown of an agency's resources, liabilities, and value at a particular snapshot in time. This statement gives a clear picture of what an agency possesses and owes and the owner's investment.
Cash Flow Declaration: This follows the progression of money in and out of an agency. It helps ensure that an agency has adequate liquidity to cover its costs and avoid cash stream issues.
Regularly reexamining these documents will help distinguish patterns, anticipate future monetary execution, and make strategic choices for an agency's development.
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