Running a small business is no easy task, and small business bookkeeping can quickly turn into a high-risk adventure if you’re not careful. Good small business bookkeeping is essential, because mistakes and careless accounting procedures can pack an immediate (and unpleasant) punch! Here are 3 tips to help you develop good small business bookkeeping habits.
Good small business bookkeeping habits to develop
Track your expenses. Tracking spending is akin to balancing your checkbook, so it’s not hard, but it’s also not fun. When you’re working on meeting the customer’s needs, it’s easy to forget that you authorized spending for this or that, and routine bills come and go. But by tracking your spending carefully through good small business bookkeeping practices, you can begin to detect patterns, make predictions and spot problems.
If you run a cash business, be especially diligent about tracking cash purchases. Keep receipts for everything, and consider making all business purchases on a business credit card. Never take money right out of the till, and review your cash procedures periodically to make sure that all of your earnings are being accounted for. Keeping detailed expense records might actually reduce your tax bill, help you survive annual audits, and can also help you plan for the future.
Track your revenues. Tracking the money that comes in is as important as tracking the money that flows out of your business. Record all of your deposits carefully, and establish routine deposit procedures.
Always keep your business deposits separate from your personal funds. Opening a business account – even for a very small business – is a good small business bookkeeping practice and will help you track the business cash. Record all business-to-personal transfers, so you can see how much income you’re withdrawing from the business account each week or month.
Also, track your receivables as part of your small business bookkeeping plan. Receivables are assets that belong to your business. Tracking them will help you avoid cash flow problems, and immediately identify customers who can’t (or don’t) pay their bills on time. Depending upon how your business is organized, you may be able to “book” receivables when you issue a bill. If you are a sole proprietor or operate a cash business, the IRS permits you to recognize revenue only when you’ve actually received it. This makes tracking your receivables even more important because each invoice is essentially “lost income” until the customer pays the bill. Remember – as a sole proprietor, you cannot deduct unpaid receivables as a business loss, so that’s another reason to pay attention to who’s paying their bills and who isn’t.
Pay your taxes! No one likes paying taxes, and everyone’s revenue picture definitely looks much better before the tax man cometh. But not paying your taxes (or those of your employees) is a great way to sink your business. If you’re a sole proprietor, you probably pay estimated taxes. The IRS allows you to transfer funds electronically to them. This is a great time saver and helps you to avoid “forgetting” to pay your quarterly taxes. Although the IRS prefers to receive your estimated tax payments just four times per year, they’re willing to accept smaller payments through their electronic system more frequently, if that helps you – the taxpayer.
If you have employees, setting aside payroll taxes is critical. Your employees probably get paid weekly or bi-weekly, but you only have to make payments to the Treasury a few times per year. Don’t fall into this small business bookkeeping trap! Set up a special “escrow” account solely for payroll taxes, and transfer the funds to your tax account each time you issue payroll. Also set up an automatic electronic fund transfer to the IRS, so you can be sure that your taxes are paid on time and in full each time they’re due.
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