As a small business owner, you probably think about tracking expenses and keeping up with tax deductions, but these aren’t the only critical accounting tips you should know. Whether you’ve been in business for a while or you’re a new start-up entrepreneur, read on for our 8 best accounting tips.
1. Outsource your bookkeeping.
For every business, bookkeeping is critical. This essential task is keeping organized records of your business’s income and expenses. If you’re like most small business owners, bookkeeping isn’t your primary skillset. And even if it is, you probably don’t have time to crunch numbers and keep records. By outsourcing this critical task, you will free up your time; put this vital function in a professional’s capable hands and check one business owner-related stressor off the list.
2. Keep accurate records.
In addition to having someone overseeing your bookkeeping, it is up to you as the business owner to make sure you keep accurate records for your business. For example, you’ll need to account for:
- Gross receipts are sales, deposits, credits, recipes, invoices, etc.
- Expenses include all receipts, canceled checks, or anything else that shows the cost of doing business.
- Fixed assets should be recorded so that annual depreciation can be calculated.
Pro tip: For tracking receipts, you may want to use a receipt scanning app on your smartphone. It makes it easy to scan and store receipts electronically instead of maintaining a large paper file.
3. Keep an accurate inventory.
Keeping accurate inventory records provides you with current data that reveals whether you can take on client requests or additional projects with inventory on hand and when you need to order stock. It also helps you identify trends over time and make basic predictions about your business operations. All of these factors allow you to plan and strategize about your business. This ability is critical to developing and maintaining a small business over time.
4. Separate personal and business accounts.
The most important reason to keep your personal and business accounts separate is taxes. As a business owner, you can deduct expenses like travel and office supplies; however, you must provide supporting documentation for these expenditures to claim them. Lumping personal expenses in with business expenses makes a tedious mess of separating expenses and could knock you out of some deductions. It is best to have a separate line of business credit, separate credit cards, and a separate bookkeeping system to be safe.
5. Have (and maintain) a budget.
You should have developed a budget when you created your business plan to make projections about revenue and expenditures. But beyond that, you must maintain a working budget at all times. This approach helps you stay on track with what you spend versus what you take in, and it provides accountability so that if you do get off track with your spending, it is readily apparent and can be corrected quickly.
6. Work with a tax professional.
When the average business owner attempts to complete their taxes, it costs them about 40 hours in valuable time. And even then, chances are, a professional’s help will be needed to ensure the business is getting all the deductions to which it is entitled. So why not start with a pro? After all, tax preparation fees are a tax-deductible business expense.
7. Plan ahead.
When a small business implements the accounting tips on this list, it allows for planning with accuracy. Accuracy is the key term. Anyone can guess what might happen, but only with accurate records and observations about business patterns can you confidently make targeted predictions. For example, a small business that tracks income and expenses can detect patterns that reveal the best time for large investments and expenses.
8. Monitor business performance with financial statements.
Again, we cannot emphasize the importance of logging income and expenses. It helps in the day-to-day operation of your small business and provides information about overall business performance. For example, income statements help your business determine profit or loss, a balance sheet shows assets and liabilities, and a cash flow statement shows how much money goes in and out of your business in a given time, as well as how much cash remains. These types of financial statements are also imperative when asking banks and investors to secure financing or funding.
With these eight tips, you can keep your small business on track, establish valuable patterns of business behavior, and make sound financial decisions for your business’s future.
If you would like help with some of these accounting tasks, contact us now.