Whatever your trade may be in the small business world, you probably love the type of work you get to wake up and do each day. Or, perhaps you're still transitioning into a true entrepreneurial lifestyle.
While self-employment can be a breath of fresh air, there are likely some tasks you just plain can't stand, such as bookkeeping. To help make the process of tracking your business finances a little easier, consider the following bookkeeping concepts for new business owners.
1. Maintaining well-organized business financial records is a must.
You must always maintain a solid recordkeeping system that contains all of your business financial files — invoices, bank statements, receipts, previous years' tax returns, and the like.
Losing track of important expense documentation and missing out on key tax write-offs are avoidable missteps many new business owners make.
Also, if your business is audited by the IRS or other authority, you can significantly minimize the typical headaches that come into play during such a review process.
2. It's imperative to categorize your business income and expenses.
How can you gauge the true growth of your small business over time? The answer comes via good bookkeeping.
By properly categorizing each and every business penny you earn and spend, you can get a better grasp of the financial status of your venture.
In addition, grouping these figures within specific categories can greatly help you reduce your tax liability and keep more of your hard-earned money.
3. Reporting all relevant sales tax information is critical.
There are numerous business tax filings you must make when diving into formal entrepreneurship, but one critical requirement many newly crowned business owners overlook revolves around sales taxes.
Fortunately, it is not difficult to fulfill your sales tax obligations and record this information in the proper areas of your bookkeeping records. The first thing is to understand your specific sales tax collection and payment responsibilities. This depends on what you sell in your business and where you offer these goods or services.
City, state, and federal sales taxes are levied in many cases. It's your duty to collect these sales taxes on each purchase and provide this money to the proper tax authorities in a timely manner. If you don't handle sales taxes carefully, you could end up with inaccurate income reports, skewed projections for future profitability, and even hefty fines.
4. You should maintain separate bank accounts.
Don't make the common blunder of using a single bank account for your personal and business financial activities.
The main reason for this is that you never want to comingle your personal expenses and business expenses.
Plus, if your business is audited, it's much easier to explain certain expenses or deductions to the IRS to clarify any concerns about your business if you have separate bank statements and accounts.
5. Backing up your books can be a lifesaver.
Thanks to affordable technology, it's simpler than ever to back up any computer files and even access them from a variety of devices on the go.
When you open a business, you have no choice but to maintain backups of every file or record.
When it comes to bookkeeping, it's more critical than ever to both maintain a backup of all financial records and ensure this data is properly encrypted for security purposes.
6. It's vital to ensure accurate data entry.
With spell check and auto-correct so readily available these days, many people are less careful when inputting information into a spreadsheet, program, or mobile app.
You simply cannot afford to make mistakes when documenting important financial figures related to your enterprise. Be sure to triple-check each and every number, dollar amount, and detail of the data you record.
In addition, input all information into the proper accounts and expense categories so that you have a precise record of these numbers for future reference.
By investing a bit of time up front to put appropriate bookkeeping practices in place as you establish your business endeavor, you will save time, money, and anxiety in the long run — and free yourself to focus on the more appealing aspects of your business.