Accounting can be complex for small businesses and should be left to those best qualified, yet the temptation may arise to outsource all your accounts to an accountant. But financial matters require close monitoring for optimal performance.
Recording daily expenses is key to the success of any small business. Here are 10 essential accounting tips that will make life simpler and position your organization for financial growth:
1. Keep Track of Your Expenses
Recording expenses is one of the most essential duties a small business owner has. By tracking expenses regularly and categorizing them according to expense category, owners can evaluate their current financial health as well as plan for future success.
Monitoring expenses has never been simpler with tools that allow you to easily import transactions from your bank account and digitize receipts. Make it even simpler by opening up a separate business bank account for more convenience.
2. Keep a Close Eye on Your Cash Flow
No matter their industry or stage of growth, small businesses rely on having more cash coming in than going out in order to stay afloat. Tracking daily cash inflows and outflows helps owners keep an eye on their finances and stay ahead of any issues that arise.
One of the easiest ways to increase cash flow is by cutting expenses. Setting clear payment terms and offering discounts for early payments can also accelerate cash inflows.
3. Keep Personal and Business Expenses Separate
Separating business expenses from personal ones may seem cumbersome at first, but doing so will save time and money come tax season or should an audit take place of your company. One way of doing this is opening a separate bank account and using an exclusive credit card for business purchases.
Another excellent strategy is to take steps such as making monthly salary payments from your business checking account to emphasize that you are an independent entity.
4. Set Aside Money for Taxes
No matter if you are an employee on W-2 status or an independent contractor on 1099, all taxes must be paid. This includes income tax, self-employment tax and national insurance (or “NI”).
At least 30% of your income should be set aside for taxes. If you need help calculating these, seek advice from a certified accountant or bookkeeper for personalized guidance.
An additional beneficial strategy would be opening a dedicated tax savings account for your business, so as to separate its expenses and income.
5. Make Sure Your Accounting Method Pays Bills and Invoices on Time
Use either spreadsheet, accounting software, or pen and paper to ensure invoices are recorded as soon as they’re issued and payments made as quickly as possible. Robust accounting programs may help here by automating check creation and expenses entry – one of the key risks facing small businesses: financial fraud.
Set reminders in your calendar or accounting software to alert you of upcoming invoice payment dates so they can be paid promptly.
6. Keep Personal and Business Expenses Separate
Divorcing personal and business expenses will make bookkeeping, taxes, and financial management much simpler. Furthermore, separating will help build your credit score, which will enable you to secure funding at more favorable terms – thus improving the odds of loan approval and reduce debt servicing costs.
Setting up a separate bank account and employing software that automatically tallies and categorizes spending is the easiest way to validate and claim tax deductions for business expenses at tax time.
7. Keep Track of Your Revenue and Expenses
Tracking and monitoring business expenses is essential for any small business. To keep personal and business expenses separate and avoid red flags from auditors.
Review and categorizing business expenses on an ongoing basis to increase deductions and cash flow while making financial planning more manageable. This also makes financial planning much simpler.
8. Keep a Close Eye on Your Customers
One of the primary responsibilities of any business owner is managing their company’s finances. Monitoring revenue and expenses helps business owners to plan ahead for long-term goals, stay on track, and achieve them more easily.
Customer feedback analysis is also crucial for running a successful small business, helping owners understand what customers are purchasing as well as why some are canceling or asking for refunds.
9. Stay on Top of Tax Deadlines
All individuals making income on their own, such as freelancers and small business owners, must file quarterly estimated income tax payments to the IRS. This ensures they get their share instead of one lump sum payment due at tax time each year.
Accurate records increase your odds of success at tax time. To avoid costly errors, hire a bookkeeper or use accounting software.
10. Hire an Accountant
Accounting may not be the most exciting part of running a small business, but it is absolutely necessary. Hiring a certified accountant is one way to ensure you use best practices and stay compliant with tax deadlines.
Keep personal and business expenses separate, utilize dedicated credit cards, and digitize receipts – this will make tracking financials simpler while decreasing liability exposure.