When you are the proprietor of a small business, there is no shortage of information that needs to be considered. Getting the back-office fundamentals of your accounting for small businesses procedures in place as early as possible, such as tracking revenues, expenditures, and profits, will hold you away from the paperwork and operating cash snafus, allowing you to concentrate on the crucial task of expanding your company instead.
In the Beginning, You May Be Able to Cope With Maintaining Your Books
But as the deadline for filing your taxes draws near and your business continues to expand, you may find that you are feeling more and more confused. Incorrectly filing taxes or keeping messy books can result in significant fines, not to mention the amount of time that must be spent repairing the errors.
Consider employing a bookkeeper or automating your accounting procedures by utilizing one of the numerous business accounting software programs that are available to you before you run into problems. Both of these options are available to you.
Bookkeeping is a tedious but essential task for any business. It makes it simpler for you to oversee your operations, plan, and avoid an audit by providing the Internal Revenue Service (IRS) with the information they require. If you want to keep making progress toward your long-term objectives and improve your profits, follow this tried and true accounting advice for small businesses.
Even though you might be tempted to put accounting and bookkeeping at the bottom of your to-do list, remember that adhering to the appropriate procedures is critical to the success of your company. The following is a list of the most important accounting advice and recommendations for small businesses:
Keep Your Personal and Professional Expenses Separate
When the time comes to calculate deductible business expenses, it will save you valuable man-hours if you have a business bank account that is specifically designated for checking and savings. From the beginning, you should make it a habit to use separate bank accounts for your personal and business transactions. Be sure to keep thorough records of any personal assets that you invest in your company in the form of capital and ensure that any such transactions are properly documented.
If you own a limited liability corporation (LLC) or a company, keeping a separate bank account and credit card for your company can help you limit your legal exposure to the company’s debts.
In most cases, you are not allowed to claim personal expenses on a tax return for a business. If you use a piece of property for both your business and your personal life, like a car or a home office, then the amount of time that you use the property for your business can be deducted from your taxes. In any other circumstance, it is illegal to deduct personal expenses when filing a business tax return. The maximum amount of the penalty that can be assessed is equal to 75% of the additional tax that should have been paid.
Keep a Close Eye on Every Expense
To guarantee that you can take advantage of the maximum number of tax write-offs and lines of credit available to you, it is important to identify and classify each expense. It doesn’t take long for dollars to add up to a significant amount, and it’s not hard to run out of cash. If you pay for all of your purchases with your business credit cards, you won’t have a pocket full of receipts to sift through at the end of the month.
This also means that you are eligible to receive benefits and cashback offers for the money that you spend. The accounting software that you use will also save copies of paid invoices and checks that you have written. When you have no other choice but to deal in cash, be sure to save digital copies of all receipts in your accounting system. Your choice of accounting method will affect the timing of when you record your income and expenses.
Keep an Accurate Record of Your Earnings
It is easy to lose track of cash infusions such as loans, revenue from sales, and other cash infusions; however, you must monitor all of your incoming cash flow. If you don’t, you run the risk of underpaying your taxes, which can result in penalties from the Internal Revenue Service that you could have avoided. In the same way that your method of accounting will determine when precisely to record expenses, it will also determine when exactly to record income.
Contemplate the Possibility of Employing a Qualified Individual, Even If it’s Temporary
Even if only for a few hours a week or month, it may be worthwhile to employ a qualified bookkeeper or accountant. This can make a significant difference. The duties of a bookkeeper and an accountant frequently overlap; however, a bookkeeper’s primary focus is on accurately recording and categorizing an organization’s revenues and expenses. A tax preparer who can also assist with business and financial planning is a good accountant to hire.
Your records will be kept up to date and in order by a professional, and a pro is in a better position to know about any potential expenses, exemptions, or extra tax deductions for that you may be eligible. If you have a good understanding of the various provisions and requirements of the IRS, you can get tax benefits and save yourself some time.
Delegating accounting tasks to a qualified professional can result in an increase of approximately R320,000 per year in new clientele for the typical owner of a small business. When you do decide to hire an accountant, you should check to make sure that person communicates with you in a way that is easy for you to grasp.
Integrate Accounting Software into Your Workflow to Streamline Your Procedures
The use of accounting software is an excellent investment for almost any kind of small company. You can use it on your own, or you can give your bookkeeper or accountant secure access to it if you decide to hire one of those professionals. Although QuickBooks is the most well-known accounting software, there are now several other, more niche options available as well. Any decent piece of accounting software should allow you to connect your bank account or credit card to the program. After that, the software will keep track of your income and expenses, sort them into various categories, enable you to submit and make payments, and generate reports for you.
Dedicate Some Time to Bringing Your Books Up to Date
You should schedule time in your calendar on a weekly basis to get the necessary paperwork in order. This will help you avoid a buildup of invoiced receivables and receipts. Be sure to keep to the time that you have allotted to yourself. As tax time draws near, this can help you avoid having to perform a significant amount of catch-up work. Accounting software can help you save time by automatically classifying your income and expenses, as well as resolving your bank and credit card statements.
Keep an Eye on the Cost of Labor
It’s possible that paying employees, including oneself, could take up as much as 70 percent of an organization’s total budget.
In order to avoid overpaying or underpaying employees, keep track of any extra hours, privileges, and other benefits that you provide. In addition to assisting you with calculating and paying your income taxes, your bookkeeper or accounting software ought to be able to assist you with calculating and paying your payroll taxes, which are governed by a different set of regulations and due dates than income taxes.
Anticipate Big Costs
Computer updates, scheduled maintenance, and tax deadlines shouldn’t come as a surprise. It is common for larger capital expenses to arise during the slower months; therefore, it is important to plan in order to avoid a shortage of cash. The good news is that a provision of the Internal Revenue Service known as Section 179 allows you to deduct up to one million rands worth of business property and equipment in the year of purchase. This is in contrast to the traditional method of depreciating equipment year by year. Therefore, even though you may feel the financial strain of making large purchases right now, you may benefit from tax breaks in the future.
Be Sure to Keep Accurate Records of the Inventory
By keeping track of the dates on which items were purchased, the stock numbers, the purchase prices, the dates on which items were sold, and the sale prices, you can prevent the loss of merchandise or its theft. The greater the degree of organization, the better. You can get assistance with this task by purchasing inventory management software that is sold on its own, or you can get assistance from one of the many accounting software that connects with inventory control tools.
Maintain a Close Watch on Your Receivables and Invoices
Simply because you’ve sent an invoice does not mean you’ll get paid. By following up with merchants who owe you money, you can avoid overpaying on taxes and save yourself hours spent sorting through the listing of your income statement and receivables. Send invoices immediately after a job has been completed to increase the likelihood of receiving prompt payment, and be sure to keep up the friendly reminders as the payment due date draws near. To further encourage prompt payment from your customers, you may even choose to offer discounts for early payment.