Top 5 Accounting Tips for Small Businesses
Regardless if you’re managing a big or small business, you employ a professional accountant, or have an accountant on staff, keeping your accounting records and systems organized is imperative for success. It’s like trying to drive your car without gas; all businesses must keep good records of the financial side of the business in order to properly function.
There is no end to your to-do list. Getting some basic business practices in order early on and developing healthy habits for managing your accounting, expenses, accounts receivable/payable, and so forth can keep you organized and focused on what really matters – building your business.
Here are our top 5 accounting tips for small businesses:
1. SEPARATE PERSONAL AND BUSINESS EXPENSES
Set up dedicated bank accounts for business and personal finances so that you can accurately track and easily reference expenses for your company. If you’re contributing capital to your business from your personal assets, be sure to accurately document them.
You cannot deduct personal expenses on a business tax return, therefore having your expenses separated will make your tax preparation simpler. If you are using your property for both personal and professional use, a portion of the expense can be deducted.
Depending on your business structure, having separate business banking and credit can also limit your legal exposure to business debts.
2. DON’T UNDERESTIMATE THE DIFFICULTY OF YOUR TAXES – HIRE A TAX PROFESSIONAL
If you’re smart enough to run your own business, it’s natural to assume that you can save yourself the expense of hiring a tax professional to file your taxes. The truth is that there’s a lot more to accounting then filling in forms, and a tax professional will be familiar with deductions you don’t realize you’re entitled to take, or inform you of an underpayment that might lead to trouble down the road.
3. BE REALISTIC ABOUT UPCOMING EXPENSES
When things are moving along swimmingly, it’s natural to assume that the status quo will remain, but you need to be realistic and anticipate that office equipment will wear down or need to be upgraded, staffing needs will change, and overhead costs are unlikely to remain the same. By planning for future major expenses and setting aside funding for those eventualities, you will save yourselves many headaches in the future.
4. DON’T FORGET YOUR EMPLOYEES WHEN CALCULATING EXPENSES
A lot of business owners will sit down to forecast their expenses or try to figure out where their money is going, but forget to give proper weight to the amount that they are spending on staffing expenses such as insurance, health care and payroll taxes. Your employees are generally one of your biggest assets, so it’s important that when you’re calculating costs, you make sure that you haven’t forgotten about all of the expenses involved with keeping them, as well as with expanding.
5. DON’T LOSE SIGHT OF YOUR ACCOUNTS RECEIVABLES
If you were an employee of a business that failed to give you a paycheck, you’d be more than just upset – you’d take action to make sure that you get paid. Yet many owners of small businesses get so enmeshed in the minutia and big decisions of their day-to-day operations that they lose track of whether clients are paying promptly and what percentage of invoices remain open.
Getting behind on your record keeping regarding accounts receivables lets things get so far behind that it becomes costly and difficult to collect, and you may end up not getting paid or creating negative feelings. Track payments as they come in, note how far behind payments due are, and take note of which clients are presenting you with collection problems.
These tips are straightforward and simple, and following them can make a significant difference in your ability to keep your business on track, to keep your forecasts accurate, and to allow you to take action when it’s needed.