It’s not always easy to keep track of your finances when you’re running a small business. You might be juggling marketing, sales, customer service, and more all on your own. It can be challenging to find the time to do everything that needs done while also keeping tabs on how much money is coming in and going out, but it doesn’t have to be.
This blog post will outline some best practices for managing small business accounting so that you don’t get overwhelmed by day-to-day operations any longer.
Practice Proactive Bookkeeping
Proactive bookkeeping is the key to successful small business accounting. It’s not enough to file your taxes on time and make sure you pay your bills. Sole trader bookkeeping experts note that this is an ongoing process that involves monitoring your cash flow, analyzing trends in revenue and expenses, and staying abreast of changes in tax law.
Depending on your type of small business, this could mean:
- Analyzing your business’s financial standing monthly, not just at the end of the year
- Monitoring incoming cash flow and outgoing expenses to avoid getting stuck with excess inventory or unpaid bills
- Establishing internal financial controls to prevent employee embezzlement
- Reviewing your company’s tax burden with an accountant at least once a year to avoid surprises when it comes time to file taxes in April
Proactive bookkeeping will help you be prepared for everything your business will face and save you money by preventing losses. It’s a smart way to run your business and a good habit to get into, even if you’re just starting out.
Track and Record Your Daily Expenses
Another critical element in your bookkeeping is to track and record all of the daily expenses you incur. Many small business owners just take a guess at what they spend, but this leads to them under-reporting their income and overpaying taxes. For example, if you don’t keep accurate records of your mileage for driving around town doing errands or pickups/drop-offs for your small business, you may forget to claim that expense when it comes time to do taxes.
Tracking everything you do related to your small business will not only keep you organized but also ensure that you’re more likely to be correctly claiming all of the expenses and income. With accurate records, you can then make sure that the right amount of taxes are being paid and that you’re maximizing your deductions. Even if you have a bookkeeper or accountant, you’ll want to make sure they’re going over your books so that they can catch any mistakes.
Set Up a Billing, Payroll, and Reimbursement System
You’ll also want to set up a billing, payroll, and reimbursement system for your small business. This will help you pay your employees on time and keep track of the money coming in from clients or customers. While there are plenty of accounting software options available (such as QuickBooks), it’s unnecessary to purchase anything like that if you don’t want to spend the money right now.
There are plenty of free online tools to help you manage your business, including FreshBooks for billing and invoicing clients. If you want an easy way to send out paychecks or track expenses that are reimbursable, check out the Intuit Payroll Service. If you’re looking for affordable accounting software, there’s QuickBooks Online Essentials. You could also set up a separate bank account for your business and use online banking to track expenses, payments, and deposits.
Determine Your Tax Obligations
Another critical step to take is determining your tax obligations. This includes both state and federal taxes, which can be complicated due to different rates for individuals versus corporations. You should also know whether you are required by law to file quarterly or yearly reports about the financial activity in your small business.
Understanding your tax obligations will ensure you’re taking the right steps to ensure tax compliance. It will also help you decide whether to incorporate your small business, which could make it easier for you to manage the financial side of things. Failure to comply with tax regulations can result in steep penalties, so it’s important to take the necessary steps to ensure you’re on track.
Don’t Go it Alone If You Need Help
If you can’t do it on your own, hire someone else. Hiring an accountant is a great idea, but many people don’t want the cost of full-time help, so they choose a bookkeeper instead. You can find affordable options if you take time to shop around for one that fits your budget without compromising quality. In addition, it’s better to get help than not do anything at all.