About 60% of small business owners don’t think they’re knowledgeable about issues like money and accounting.
If you’re a small business owner and you’re managing your business finances, you know that it can be stressful. It’s hard to keep track of when money comes in and goes out of the business.
These small business accounting tips will help you understand your financials and put systems in place to manage them.
Are you ready to learn some easy accounting tips for your business?
Let’s get started!
1. Open Separate Bank Accounts
This accounting tip is so important, yet many small business owners overlook this. This happens most often with sole proprietors, but everyone needs to maintain separate banking accounts no matter what.
You should have a personal account for your personal expenses like rent and groceries. You can then have a business account where you receive funds and pay business expenses.
Having this system in place early in the business will make it easier to track your financials and scale up your business.
2. Schedule Accounting Appointments with Yourself
Business owners tend to play catchup on their financials between January and April 15. During that time, they spend hours on reporting expenses and income so they can do their tax returns.
Instead of spending hours of time each year, take a little bit of time either monthly or weekly to record your income and expenses. You can reconcile your bank accounts and file your paperwork at one time.
That type of system will save you stress and time at the beginning of each year. Your accountant will love working with you because your records are organized and it’s much easier to do your taxes.
3. Keep Records Accurate and Organized
You never know if or when a tax audit will arise. If you have employees, you may have to defend your business in a labor dispute. You’ll need to draw upon your records from years ago in order to protect your business from fines or penalties.
If you don’t have them, then you could be out of luck.
Hang on to all receipts, payroll records, and business documents for about 7 years. That’s the amount of time the IRS recommends to hold on your records.
You should have an easy filing system for past tax returns, business receipts, leases, insurance, and permits. You want to have a system so organized, you can find documents in just a few minutes.
4. Use Accounting Software
Do you use spreadsheets to manage your income and expenses? You definitely want to upgrade to an accounting system that connects with your bank account.
You can enter and track your expenses and assign expense categories to make reporting a lot easier. Accounting software is great because it limits data entry mistakes.
One small typo could through off your income and expense calculations, leaving you to wonder why you’re short at the end of the month.
5. Get Accounting Help
Tax laws are incredibly complicated. You may want to try to learn all of the tax laws on your own and do your taxes yourself, but that will drive you crazy.
In 2020, tax laws are going to be even more complex as businesses take advantage of government programs through the CARES Act.
For example, if you received a PPP loan, you won’t be able to deduct some expenses that the loan paid for on your 2020 tax returns. The IRS considered that to be double-dipping. That may change through legislation, but no one knows for sure.
You’re much better off getting accounting help because it will save you time and give you peace of mind. A company like Finvisor.com can handle accounting and bookkeeping tasks, along with providing tax assistance.
6. Meet Tax Deadlines
Small businesses are regularly penalized by the IRS because of late taxes. Businesses that are late paying payroll taxes pay an average of $845 in interest and penalties.
You can completely avoid that by doing one simple thing – pay your taxes on time. You can make a note in your calendar to pay your taxes a week early so it’s done.
7. Prepare Regular Financial Statements
You want to be able to look at simple reports and take a snapshot of the financial health of your business. Most accounting software will do that for you.
You could also have a bookkeeper or accountant prepare these reports for you. Some small business owners prefer to have these statements in spreadsheets, whether they use accounting software or not.
The most important financial statements you need to have are profit and loss statements, revenue projections, and profit and loss projections.
8. Set Aside Money for Taxes and Large Expenses
This is an issue for new small business owners. If you are going to pay more than $1000 in federal taxes, you have to pay quarterly estimated taxes.
Small business owners don’t realize this until they get a huge tax bill the first year they do their business taxes. What often happens is that they don’t have money set aside to pay the large tax bill, and are assessed interest and penalties.
They may wind up on a payment plan in order to clear out the back taxes.
It’s always best to set aside a percentage of funds as soon as you receive income. How much you should set aside depends on many factors, and you should talk to a tax professional for guidance.
9. Have Systems for Accounts Payable and Receivable
Cash flow is the main reason why businesses have to close. It can be hard to manage if you don’t know when a client is going to pay you or your income fluctuates often.
The best way to manage cash flow is to have systems in place for when money comes in and goes out. If you have clients that pay monthly for a program, you should put them on automatic billing to ensure they pay you on time. It’s also convenient for them to manage.
The Top Small Business Accounting Tips
Small business accounting can take up a lot of your time and energy that can be better spent elsewhere.
Out of all of these small business accounting tips, the most important ones have to do with being organized. Organization will make accounting easy and can help you avoid costly penalties and interest.
For more business resources, be sure to visit the Business Finance section of this site for more tips to manage your financials.