Most people think of Accounting and are tempted to include taxes or bookkeeping at the bottom of their priority list. Let’s be honest we want to think about making money in our business and accountants cost money right?
But following the right procedures with accounting can actually set your business up for success, and because of that we have put together a list of the top small business accounting tips and tricks.
1. Keep Business Accounts Separate from Personal
If you haven’t already, you will need to start to separate accounts and have a dedicated business bank account for checking and savings. This will save you tons of man-hours when it is time to prepare your business tax deductions.
Remember, you cannot deduct personal expenses on a business tax return, the only personal you can deduct is property that is used like your car or if you run a home office, even then you will only be able to deduct the portion of time you use the property for the business. Otherwise there is a penalty that can be as high as 75% of the additional tax amount that you owe as a result of this costly error.
2. Track Expenses
Document and categorize each and every expense to assure that you take full advantage of all write-offs and credits. Pennies add-up to dollars and it is easy to run out of money.
To simplify this step use the business credit card for every purchase and you won’t have to worry about having a pile of little papers to go through. If you use a card that earns points you will also be maximizing your rewards and cash back for your business spending.
Accounting software is also helpful as they can help you to store copies of checks and invoices. When cash is the only way to pay, accounting software can now help with that too… Yes, there is an app for that!
Try Quickbooks 50% off with a Quickbooks ProAdvisor here
3. Record Income Accurately
Keep records of loans, revenue from sales can easily get lost in the midst of a pile of papers, all incoming cash flow needs to be documented. Otherwise, you run the risk of underpaying your taxes leading to IRS penalties. Proper accounting methods will dictate when to record income and keep you safe from IRS penalties.
4. Hire a Professional (Temporarily if Necessary)
Bringing in a professional bookkeeper, accountant, CPA, even if only a few hours a week or month will make all the difference. The job of a bookkeeper is record maintenance while an accountant may help with strategic planning or file taxes.
Hiring a professional will help you to keep your records up-to-date and in order. A pro will know all the loopholes, and the ins and outs of fees and the proper way to document transactions, loans, and how to correct your mistakes.
For example, let’s say that you used the personal card for a business transaction; do you know how to correct it… probably not, but the professional does.
5. Automate with Accounting Software
Accounting software is the best way for virtually any small business to keep accurate records. You can do the bookkeeping on you own or give access to your bookkeeper or accountant, if you have one.
Quickbooks is the leader in the industry, although there are several smaller alternative companies. Regardless of the software you choose you should make sure that you are able to link your bank account and credit card, track income and expenditures, and categorize them accordingly. The software should allow you to send and pay invoices and generate reports. QuickBooks also has a ProAdvisor program to help you find an expert if necessary.
Try Quickbooks 50% off
6. Keep Track of Labor Costs
Payroll may account for up to 70% of a small business’s budget. This means that every measure must be made to account for everything, including overtime, perks, and other benefits to prevent overspending and under-spending. Your accountant or accounting software should be able to help in calculations and handle payroll taxes, which have their own set of rules and deadlines that differ from income taxes.
7. Be Prepared for major Expenses
Upgrades to equipment, office space, and tax deadlines should never come as a surprise. What would happen if the large expense arose during the slowest month of your business. To simplify this section, “If you fail to plan then you plan to fail”. Don’t do this, instead be prepared and take advantage of all write-offs that you can. There is an IRS provision called Section 179 that lets you deduct up to $1 million of business property and equipment in the year of purchase, instead of depreciating the equipment year in year out.