There’s no shortage of details to consider when you’re a small business owner. Getting the back-office basics of your small business accounting practices in order early on – tracking revenues, expenses, and costs – will keep you out of the weeds of paperwork and cash flow snafus, and onto the important work of growing your business.
“You can get away with doing your own bookkeeping and accounting when you first start out,” says New York-based CPA Maggie Kirkendall. “But once you’re ready to file tax returns you often realize you didn’t know enough or didn’t want to spend enough time to figure it out, and that’s when I suggest getting a bookkeeping or accounting service to help you maximize any tax advantages.”
Fees can be “atrocious,” she concedes, so in the meantime consider automating your small business accounting practices with one of the many finance software applications available to you, such as Xero, QuickBooks, FreshBooks or Wave. Go with the software that best suits your needs, like having cloud-based access or user-friendly iPad apps.
Bookkeeping is a necessary chore of all businesses, helping you manage your operations and prevent an audit by giving the IRS what they need. To keep moving toward your long-term goals and improve profits, get your small business accounting practices in order with these essential tips:
- Separate Business and Personal Expenses – Having a dedicated business bank account, including checking and a credit card, saves you precious man-hours when it’s time to tally up deductible expenses. It’s tough to do out of the gate, but this small business accounting practice will save you major headaches down the road.
- Track Every Expense – Label and categorize each expense, and track your cash flow, or “you’re bound to miss tax write-offs and credits,” Kirkendall says. Dollars add up quickly and you can easily run out of money. Use your business credit cards for all purchases and you won’t end up with a wallet full of paper receipts to sort through. This also means you can earn rewards or cash back for your spend. But when cash is your only option, file digital copies of receipts to your accounting software.
- Accurately Record Deposits – Loans, revenue from sales and other cash infusions are easy to lose track of, and that can lead to paying unnecessary income taxes. Ask your accountant for the best small business accounting practice for recording these deposits.
- Understand When It Pays to Pay – Hiring a professional bookkeeper or accountant, even for just a few hours a week or month, can make a big difference. Your records will be up-to-date and orderly, and a pro is better equipped to know about potential fees, loopholes or additional tax deductions for which you may be eligible. “Knowing fundamental accounting terminology can help you get tax advantages, which is what you really care about at first,” Kirkendall adds. When you do hire an accountant, make sure he or she speaks to you in a language you can understand.
- Dedicate Time to Update Your Books – Block out weekly time in your calendar to get necessary paperwork in order and avoid letting receipts and invoiced receivables pile up. Make sure to stick to the time you’ve set aside!
- Keep Tabs on Labor Costs – Paying employees, including yourself, may be your largest expense. Take note of overtime, perks, and other benefits you offer to prevent over- or under-paying.
- Expect Major Expenses – Computer upgrades, equipment replacement, and tax deadlines shouldn’t come as a surprise. Larger capital expenses often come up during slower months so plan ahead to avoid a cash crunch.
- Maintain Inventory Records – Avoid misplacing merchandise – or theft – by noting dates purchased, stock numbers, purchase prices, dates sold and sale prices. The more organized, the better.
- Follow Up on Invoices and Receivables – Just because you’ve sent an invoice doesn’t mean you’ll get paid. Avoid overpaying on taxes and hours spent sifting through your revenue account and receivables listing by circling back with vendors who owe you money. Accepting online payments and using cloud-based accounting software can help automate this process for you.
Finance is the backbone of any business, so learning good small business accounting practices is a must. Get in touch with an accountant (if you don’t already have one) and ask them for the best place to get started!