Bookkeeping is a very critical aspect of running a successful business. But unless you're an expert on accounting and/or tax laws, it can be tough for most small- to medium-sized business owners. And let's face it during your time on active duty as a military officer you probably didn't spend much time or effort doing "business" accounting. Unfortunately, ignoring its importance isn't an option, and doing so can be detrimental to your profits or get you in hot water with the Internal Revenue Service. To help avoid these, it's important to learn a few bookkeeping basics to be on the safe side.
Here are some top bookkeeping tips to become a savvy business owners:
1. Keep Accurate Records
The importance of keeping accurate financial records for your business cannot be over-emphasized. Fortunately, you probably did learn this skill on active and today, automated and online systems have made the recording and storing of financial records easy, fast and seamless. As a business owner, consider having a system (software) that ensures all your businesses’ financial operations are tracked, recorded and stored securely. This includes how cash was spent, whether cash or credit cards were used, whether employees were reimbursed, etc. Accurate records make it easy for the accountant or auditors to do their work when tax time comes or in the event of an audit.
2. Sort and Keep Track of All Receipts
Sorting and keeping track of all receipts in a business seems tedious and time consuming, but if it's made a part of each transaction, it can save you a lot of headache in the future. Although receipts come in different sizes, shapes, and tend to fade over time, you can ask your staff to photocopy or scan them into receipt management software before collating them by date so that they correspond with your financial records. If possible, categorize them by their specific deduction for easy recall when you need them. Some accounting software programs will allow you to attach an electronic version of your receipts to the transaction. And, in fact some will import transactions from your credit card and bank account websites.
3. Separate Your Business and Personal Expenses
Treat this just like your Government credit card. You didn't use it for your personal expenses (as some people found out the hard way) so don't use your business card for personal expenses. But, if you happen to use your business credit card to pay for a personal expense, or vice versa; track that expense and separate it as soon as possible. Mixing your business expenses with your personal expenses will not only make it difficult for you to keep accurate financial records for your business, but also deny you tax deductions. Business expenses are tax deductible, so take advantage of this and make sure you separate your business and personal expenses after purchases. Additionally, you may lose asset protection if you mix your business funds with your personal funds.
4. Keep Track of Your Invoices
Occasionally, clients or vendors are late with payments, hurting your cash flow, and causing a disruption in your accounting. Consider hiring someone to keep track of your accounts receivable or use a monthly reporting software to smoothly monitor how much is outstanding and automatically send out reminders to late-payers.
5. Collect Applicable Taxes
Consider taking out taxes at the point of sale or at the time of payroll generation to avoid creating a back-log that will give you a headache at the end of the year. Just like with receipts, the longer you stay between a transaction and proper recording/accounting, the higher the chances of making more errors. When you collect the taxes as soon as the sale is made or payroll generated, you will not be liable for one lump-sum tax at the year end, nor will you face penalties for delayed payments on your taxes. Also if your business is taxed as a sole proprietor or partnership don't forget to pay your estimated personal taxes, including self-employment taxes.
6. Track Your Expenses
It is recommended that you avoid using cash when making payments for your business because it can be very difficult to track these expenses. Consider using credit or debit cards, bank transfers, or online payments because you can view these transactions and show that all items purchased are business expenses (to avert issues with taxes and write-offs).
Proper bookkeeping is an important aspect of any business. It’s always advisable that you consult a pro for expert advice and service to avoid making costly bookkeeping mistakes.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.