Being a small business owner can be an exciting and rewarding experience. But it’s also stressful, with no shortage of details to consider on a daily basis.
As the business owner, you may be the face of your company, but this doesn’t mean that back-office tasks should not be a priority. In fact, back-office administration is vital to your small business success.
Here are a few accounting best practices you should implement in order to keep your business finances clean and tidy, all year round.
Accounting Best Practices to Keep Your Finances on Track
It’s important to get your business accounting practices spot-on from the get-go. This means tracking your revenues, expenses, profits, and taxes from the day you open your doors.
Essentially, this will help to keep your business out of the weeds when it comes to cash flow and unwanted penalties. This will also allow you to focus on what’s most important- growing your business.
1. Keep Business and Personal Expenses Separate
No matter how small your business starts out, you must make a priority of keeping your own expenses and business expenses separate.
Have a dedicated business bank account for both checking and savings accounts. Basically, this will save you precious time and labor when it comes time to tally your deductible business expenses.
Likewise, if you’re contributing capital to your business out of your own pocket, make a record of this and clearly document each contribution.
Separating your business expenses will also limit your own legal exposure to business debts if your business is an LLC or corporation.
2. Prioritize Your Bookkeeping
Initially, you may be able to manage your own bookkeeping. But as your business grows, this process could become all-the-more complicated and daunting.
Fees for incorrect taxes and messy bookkeeping can be very high and ultimately make or break your business. This is why it’s worthwhile hiring the help of a professional or implementing the use of automated accounting software.
Learn more about FreshBooks vs QuickBooks for the best business accounting software.
3. Keep Tabs on Every Single Expense
It’s absolutely vital that you track and record every single business expense from the minute you are up and running. By tracking your cash flow this ensures you can maximize tax write-offs and credits where possible.
A top tip: use a business credit card for all your purchases so you can maximize on cashback rewards and avoid a tedious paper trail of receipts!
When cash transactions are your only option, make sure to file digital copies of all your receipts on your accounting software.
4. Avoid Penalties and Accurately Record Income
In order to stay out-of-trouble with the Internal Revenue Service (IRS), you must keep tabs on all the income your business receives.
This means you must keep track of loans, revenue from sales, cash infusions, and even your own contributions. If you don’t, you could end up underpaying on your taxes which could lead to expensive IRS penalities.
5. Plan For Major Expenses Down the Line
The goal of owning a business is to grow in your success as each year passes. This means that your business expenses will increase as supply and demand ebbs and flows.
It’s important to set aside some sort of savings or shortfall in the event you need to spend money on major expenses.
This could be anything from computer upgrades, replacing equipment, moving to larger premises, tax deadlines, and more.
The great news is that you may feel the pinch of large expenses initially, but can be rewarded with great tax breaks down the line.
Grow Your Business and Financial Acumen
Aside from these accounting best practices, check out the rest of this website if you aim to grow in your finance and business knowledge.
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