Entrepreneurship allows millions of small business owners to realize their dreams. Though this is exciting, every business comes with the chore of bookkeeping. It may not be the exciting part of the business, but it is a key component of business survival.
To handle this task efficiently, CPAs recommend cleaving to the following eight best practices:
Separate business and household income
Your small business- and household assets belong to two separate entities. From the start, separate books should be kept for the business and your personal funds. When they are co-mingled, major difficulties result, especially at tax time. Further, protecting your personal property by creating an LLC ensures that you will avoid being held personally liable for the business’s debts. Co-mingling the funds could subject you to personal liability if the business goes under.
To separate income and assets, open a business banking account and credit card. In addition to separating accounts, this also establishes a credit rating for your company.
Automate, Automate, Automate
Chances are your core competencies have little to do with accounting. Having to enter data into spreadsheets and manually reconcile accounts just creates a chore that removes focus from what your business does best. Cloud computing bookkeeping software automates these processes, saving precious time. The software can be synced with your business bank account, creating accurate and up-to-date records that are backed up offsite.
Your accountant can provide a wealth of information about setting up accounting systems. For example, he or she would know whether your business can use an off-the-shelf accounting program or needs customizable software. An accounting pro can even show you how to deploy the software and the features you need.
Financial Checkups: Just What the Accountant ordered
Putting off bookkeeping leads to nasty surprises, such as bounced checks, overdue invoices or misappropriated money. A weekly review ensures your books stay neat and tidy.
Quarterly Reviews for Financial Success
The books are more than a way of keeping track of money. They also reveal keen insights into business performance. Quarterly reviews show trends, such as growing or declining sales. They also provide useful comparisons, such as year-over-year revenues. Red flags, like late-paying customers, also become apparent.
If financial statement analysis is not in your wheelhouse, you can get advice from your accountant on how to interpret the numbers. Understanding the implications of your businesses financial data allows you to see the big picture as well as drill down on specific aspects of the operation.
Keep Diligent Records
The Tax Cut and Jobs Act of 2018 opened many possibilities for business tax deductions. With the economy under pressure from COVID-19, every one of these cost saving opportunities matters. Make sure to keep records of all expenses. You can save time by digitizing records and receipts. Using a business credit card for purchases can also lessen the record keeping burden.
Use time tracking software to record employee hours
If you want to make payroll a snap, employ cloud-based time tracking software. These applications allow employees to clock in and out using their smartphones, tablets or computers. They also automatically track overtime, paid time off and other payroll considerations. The key is finding one that integrates well with your bookkeeping software.
Consistently Monitor Accounts Receivable
Lack of cash flow is the most common reason small businesses go under. Therefore, keeping close tabs on accounts receivable is essential, especially while the economy remains hobbled by the pandemic. Contacting customers promptly often resolves the problem right away. In cases where customers are also experiencing pandemic-related hardship, a payment plan may allow you to get some of the cash now and all of it later.
Watch Those Tax Deadlines
Tax planning prevents IRS headaches. If you miss a deadline, fines and interest can create a snowballing tax debt. Also, by setting aside money for taxes each month, you prevent a cash crunch at tax time. The IRS publishes a tax calendar on its website, which you can sync with your own cloud-based calendar.
By adhering to these best bookkeeping practices, business owners save time, money and aggravation. They also keep their finances organized in a way that gives them a bird’s eye view of how well their business is functioning. Well kept books ensure a business keeps humming along without running into any detrimental surprises.
Tax Avenger, Canton provides full-service accounting and bookkeeping for small businesses in Michigan and considers its clients as partners. We are one of the leading tax firms in Wayne County and the State of Michigan. With more than 18 years of experience in accounting and taxation both locally and internationally, our commitment to exceptional customer service ensures you are in good hands.
We provide efficient, cost-effective accounting and tax services including, business accounting services, individual tax preparation, financial and tax consulting to payroll services, and so much more. Call us for a Free Consultation!