Efficient Bookkeeping Allows Business Owners to Focus on Growth. Follow These Easy Tips for Best Practices

Efficient Bookkeeping Allows Business Owners to Focus on Growth. Follow These Easy Tips for Best Practices

by | Accounting News, Bookkeeping, Business Growth, News

Whether a small business owner is working with an accountant or on their own, it’s critical to establish a bookkeeping process in order to mitigate the possibilities of unexpected cash flow problems. Tracking finances and transactions provides stability for your business and allows you to focus on company goals and growth. Here are some tips for efficient bookkeeping.

Separate Business and Personal Expenses

This should be done as soon as you establish your business. Separating personal and business accounts is beneficial in that it helps to:

  • Avoid blurred lines on expenses that could prompt an IRS audit.
  • Limit your personal liability should your business ever be sued.
  • Clarify business expenses for bookkeeping practices

By opening business accounts, you will begin to develop business credit, which is separate from your personal credit history. A good business credit score translates to lower rates on insurance policies and increases your borrowing potential.

Track All Business Expenses

It might seem like a no-brainer, but tracking and categorizing expenses and revenue streams are essential for tax purposes and profit monitoring. Doing so allows you to easily spot different areas of strength and growth based on chronicled data. Whether you use an accounting software program, a basic spreadsheet like Excel, or even a pen-and-paper ledger, what matters is that you find a process that works for you and stick with it.

Keep a Consistent Schedule for Bookkeeping

Unless your small business offers financial services, it’s unlikely that you started your company due to a love of numbers and bookkeeping, so it’s understandable if this might be a task that’s tempting to push to the backburner. However, consistently scheduling blocks of time for balancing the books will help simplify your life, especially during tax season. If your business has grown to the point where you loathe the time it takes to keep up on bookkeeping, you might be ready to hire on a bookkeeper.

Be Prepared for Major Expenses

Even if you have meticulously maintained balance sheets and cash flow reports, you don’t have a crystal ball to predict surprising expenses. That’s why it’s crucial to plan for such expenses, especially unplanned ones, with a separate emergency fund dedicated specifically to your business. Aim to save enough cash to cover expenses for three to six months. Having cash stashed away also helps to avoid going into debt for your business. Operating with little to no debt means less risk and a faster profit, which means you’ll have more capital to put back into your business for growth opportunities.

Prepare for Personal and Business Taxes

Do your best to dodge surprises and errors with your small-business taxes by preparing throughout the year. Here are some things to keep in mind:

  • Income tax: The manner in which you’re required to pay income taxes depends on how your business is structured legally. For example, if you have a sole proprietorship, your business taxes are paid as part of your personal income tax known as “pass through” taxes. However, if you have a structure like a Limited Liability Company (LLC), you’ll owe self-employment taxes and no corporate taxes. Be sure that you understand how your business is structured legally so you know how you’re required to pay income taxes.
  • Payroll tax: In order to file payroll tax returns, you need a Federal Employer Identification Number (FEIN). If you operate across more than one state, you will also need a State Identification Number for each state in which your business operates. Payroll taxes are deposited either semiweekly or monthly and reported quarterly.
  • Sales tax: If you’re in the business of selling products, you need to collect sales tax from each customer. These taxes differ by state, county, and city. If you sell online or across multiple locations, it might be beneficial to consult a tax professional to be sure you’re collecting sales taxes correctly.

Consider Hiring and Accountant

While most accounting software programs have some form of technical support, the risk of user error is high. Real-world accounting professionals can offer an experienced set of eyes to ensure your records are accurate and your finances are organized. The hours you devote to keeping up on your business’s books and taxes could be better spent brainstorming new ideas, managing your team, and searching out new growth opportunities.

How Entrepreneurs Can Manage their Personal and Business Finances

How Entrepreneurs Can Manage their Personal and Business Finances

by | Accounting News, Business Consulting, News, Resources, Tax, Tax Consulting, Tax Planning

Entrepreneurs are tasked with not only managing their business finances, but their personal finances as well, and when needs, circumstances, and priorities don’t align with the two, managing it all can feel overwhelming. To keep personal finances from getting pushed to the side, below are some tips to help you handle your own money while overseeing your business’s.

Plan for Rainy Days

Building an emergency fund for rainy days is not novel advice, but business owners might want to stash away even more than the recommended three to six months’ worth of living expenses. Are you prepared for circumstances like irregular fluctuations in cash flow, loss of a major client, or a national pandemic? Keep in mind that the purpose of an emergency fund is not to earn a big yield on this money but to be sure it’s there and accessible, so keep it in an FDIC-insured cash bank account.

Separate Business and Personal Finances

When you first start a business, open a business bank account and apply for a business credit card for business expenses. In addition to helping you build business credit, this will streamline your tax prep during tax season, lend more credibility to your business as an actual business, remove personal liability in case of adversity, and eliminate the burden of your business’s financials from your personal accounts.

Automate Bill Payment Schedules

A common personal financial tip is to automate your bill payment schedule, so consider carrying this practice over to your business finances as well. This will hep to prevent you from getting overwhelmed with both personal and business bills, thereby avoiding late payment fees and knocks to your credit score.

Manage Your Personal Credit

You know how crucial good credit is for your business, so it makes sense to keep your personal credit in check as well. Be sure to pay bills on time even if there are months when you can only make the minimum payment. Also be aware of your credit utilization (the percentage of credit that you’re actually using versus your total available credit limit). Keeping your credit utilization below 30% will keep your credit in good standing for loan approval.

Save for Retirement

Although it’s typical for business owners to invest profits back into their business, you still need to prepare for retirement, and investing and diversifying your savings may help you save more money for retirement than you could as an employee. SEP IRAs, SIMPLE IRAs, Solo 401(k)s, and SIMPLE 401(k)s are all retirement plan options available to small businesses. Research each one to determine which would be the best fit for you and your business. As for diversifying investments, look into options like stocks, bonds, ETFs, and money market mutual funds. Allocating your assets into different funnels will give you some breathing room should your business experience a struggle period.

Look to Tax Professionals

It’s no secret that U.S. tax laws are complex, and different business entities have different taxation rules. An accountant or tax professional can help you determine what your obligations are. To streamline the process, be sure to keep clear and organized records all year long.