One thing is for sure: running a business has many, many moving parts! If you're just getting started, you are probably wearing many or even all the hats for your business.
The accountant hat is probably not your favorite to wear - you went into business to do what you love, after all! But it is something that is an absolute must when running a business. Getting your business on track today will help you tremendously in the future. Whether it is with helping you manage cash flow or avoid paying for unnecessary expenses, you'll find that taking the following three actions will help save you a lot of stress and pain in the future:
Draw the line
Opening a bank account to separate your business and personal expenses is a must. If the business entity is a corporation or an LLC, owners are required to keep their personal and business accounts separate. Sole proprietors don't legally have to keep separate bank accounts, but it is highly recommended to do so. You'll find that tax season is a lot less painful when you keep both business and personal expenses separated. Doing this also makes it easier for you or your accountant to manage your business finances.
TIP: Be on the lookout for bank fees and special requirements to keep bank accounts open. Some banks have a monthly "account maintenance" fee or a monthly minimum. Look for a bank with minimal fees (or no charge) if possible to save you a couple of bucks throughout the year.
Organize your business
Many of the expenses incurred by your business are tax-deductible, but the IRS requires documentation of the deductions you claim for your business. Use a good organizational or tracking system for the following items:
credit card statements
previously filed tax returns
anything else that supports income, tax deduction, or credit reported on your tax returns
TIP: Be sure to keep documents for 7 years in case of an IRS tax audit. Digital versions of receipts, bills, etc. are acceptable. Use a scanning app or snap a picture directly from your phone and save the file in the cloud using products such as Google Drive or Dropbox. No more filing cabinets or folders needed!
Keep your bookkeeping workflow streamlined
Bookkeeping is not the sexiest task - the magic is in the results of good bookkeeping. Start by using an accounting system that works for you. You can opt for a robust spreadsheet that tracks your financial records or you can use accounting software such as QuickBooks Online or Xero.
Whether you wear the bookkeeper hat or outsource these tasks, bookkeeping should be done on a monthly basis.
Here is an overview of a bookkeeping workflow:
Gather all receipts or bank/credit card statements
Record the transactions in your accounting software/spreadsheet
Reconcile bank accounts
Close the books
By completing these tasks on a monthly basis, you'll have an easier time during tax-season, ensure you have accurate financial statements, and avoid paying heavy fees for someone to come in to catch you up on your bookkeeping.
TIP: As a new business owner, doing your books yourself may be the most cost-effective option until your business has grown enough to outsource this task. Make sure to consult with an accountant at least twice a year to spot check your work and point out any potential issues or areas for improvement. If you would like for us to take a look, book a call today to get started: https://calendly.com/lotus-fms/discovery-call