As a business owner, you know you have to keep accurate records of both your income and your expenses. (Ft. Worth Tax Help: Balancing a Small Business Budget)
Besides saving money when tax season rolls around, keeping clear and concise records of all your business transactions will give you a good overview of which business activities are paying off. This also helps you understand where you might be able to cut costs in order to improve your earnings.
You could hire an accountant to manage this for you, but even so, it’s important to have at least a basic understanding of accounting and bookkeeping best practices.
1. KEEP YOUR PERSONAL FINANCES SEPARATE
If you run a small operation and aren’t turning a huge profit or even paying yourself a salary, merge your business and personal finances. 20% of business owners make the mistake of using the same bank account for both their personal and business transactions.
However, a separate business account will make it a lot easier to keep accurate records. It can also help you to take advantage of tax reductions, and apply for credit cards or secure a loan using your business name. Keeping things separate can also help you protect your personal credit score and assets.
2. PLAN FOR ALL MAJOR AND RECURRING EXPENSES
Although it’s likely that you’ll run into some unforeseen expenses from time to time, you should have a clear idea of major and recurring business expenses. This allows you to create an annual budget and also set aside enough money to cover your recurring business expenses.
Major expenses to plan for when you’re first starting out include one-off business purchases like a computer. Recurring expenses are the ones that will keep coming back such as utilities, rent, insurance, travel expenses, and marketing costs.
3. SCHEDULE TIME FOR BOOKKEEPING ON A MONTHLY BASIS
Another common mistake new business owners make is not organizing their bookkeeping on a weekly or monthly basis. They then have to make sense of all the receipts and business transactions that built up over time.
So rather than letting it all pile up and promising yourself that you’ll get around to it eventually, make your bookkeeping a priority by setting aside at least one day each month that is fully dedicated to getting your accounts in order.
4. DEVELOP A RELIABLE BOOKKEEPING SYSTEM
Even if you hire an accountant to manage the bulk of your accounting, the task of bookkeeping, which involves recording your day-to-day business transactions and reconciling bank statements, will most likely still fall to you. So you’ll need to develop a reliable bookkeeping system and stick with it.
To make things a bit easier on yourself, you may want to invest in accounting software. This can help you with things like invoicing, time tracking, and expense management. Examples of programs that you might consider include QuickBooks, Xero, and FreshBooks.
5. UNDERSTAND YOUR TAX OBLIGATIONS
Since you’ll have to set aside enough money for your taxes each month, it’s important to understand your tax obligations and deductions. As a small business owner, you’re also legally required to keep business records for five years or more, so back up your records.
Government websites are a good source for guidance and information on what records you’ll need to keep. It’s still a good idea to hire a knowledgeable accountant who will be able to advise you. They can also inform you of tax requirements and deductions that apply to your specific situation.
Call Scott A. Kunkel, CPA PC today in North Richland Hills at 817-498-1040 to have a chat about ways to save money on your taxes.
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