If you need to improve your business strategy, take a look at your bookkeeping method. Proper bookkeeping enables small businesses to plan their budgets, file taxes, reduce taxable income by claiming deductions, etc. Bookkeeping has a myriad of benefits, so it’s a great idea to improve how you take care of books. Read further to learn useful tips for proper bookkeeping.
Separate Personal and Business Expenses
Open a business bank account. It’s the first step to financial stability since you separate business and personal expenses. To open a business account, a company owner has to obtain EIN (Employer Identification Number).
Companies registered under a sole-proprietorship structure can use their social security numbers instead of EIN. Business bank accounts offer the following advantages:
- Easy tracking of all financial statements can lead to tax deductions. It’s an advantage every business owner should consider.
- Personal liability protection. All business funds are separate from personal budgets, so it won’t be possible to request personal funds as payment for loans.
- Credit cards with various bonuses. Having business credit cards also enables healthy cash flow within the company.
Experts recommend opening savings, credit, checking, and merchant services accounts. That way, a company enables a smooth system of transferring payments.
Get Bookkeeping Software and Consider Bookkeeper Services
No company can flourish without a bookkeeping process. Bookkeeping is critical to a company’s financial health since it enables tracking and storing income, loss, expenses, and other important financial data. It’s also crucial to proper financial management and making profitable business decisions.
Bookkeeping requires time and effort, so the best option is to hire a dedicated bookkeeper. You may consider a freelance bookkeeper. In most cases, it’s a more beneficial and affordable option.
The bookkeeper will work according to your preferred method of keeping books. There are two methods:
Using bookkeeping or accounting software is definitely a better solution. It’s also a good idea to use receipt tracker apps. They enable employee to scan and immediately upload receipts to the cloud. As a result, the bookkeeping process becomes automated, and there are fewer mistakes made in the process.
Keeping proper financial records is time-intensive and small mistakes can be costly. BooksTime makes sure your numbers are 100% accurate so you can focus on growing your business.
Develop a Strict Budget
Creating a budget requires figuring out what expenses the company may need. Upon calculating all expenses and creating a budget, compare it with actual business expenses. Having a strict budget means that you can spot unnecessary expenditures and improve the financial health of the company.
Keep Records Properly
Thankfully, fewer business owners think today that as long as their companies strive, keeping records isn’t as important. Properly keeping all documents, receipts, reports, tax forms allows business to file taxes properly.
Moreover, it won’t be possible to claim reimbursements without keeping all receipts. Moreover, the IRS agent may visit your office to make an audit. In that case, it’s crucial to provide all necessary documents to avoid any punishments.
Updating books is a must whether the owner is bookkeeping on their own or asks for the help of a professional bookkeeper. If a company uses the services of a freelance bookkeeper, it’s possible to schedule weekly or monthly book updates.
It’s possible to take care of bookkeeping without any help if the business is small. To update books on time, dedicate a day of the week for updates.
Plan for Major Expenses
Even if the business is still small, it will expand eventually if the owner is successful. But expanding a business leads to major expenses. Here is just one example — software expenses.
Small companies can use manual bookkeeping methods, but not when they become bigger. Companies generate more profit, business-related expenses, hire more employees, etc. In that case, it will be nearly impossible to track everything properly.
That’s why it shouldn’t come as a surprise when it’s time to use tracking software. Other major expenses may include buying equipment machinery, investing in projects, etc. Plan beforehand to have the necessary funds without any shortages in other business areas.
Create Future Financial Projections
It’s great when your company is stable and financially healthy today. But to keep the progress, create financial projections. Such techniques as general profit and loss statements or common size analyses enable company owners to project where their companies will be in the future and how well they will be performing.
The financial projection method provides business owners with tools to plan several years ahead. It’s possible to figure out where to invest successfully to get the best outcomes. This method can also tell whether it’s time to apply to get a business loan and begin expanding.
Note that the financial projection method is tricky. It requires forecasting expenses change based on the economic situation in the country. It also requires forecasting clients’ and even partners’ decisions. Still, taking time and asking the help of professionals leads to creating realistic future plans where your business is striving and expanding.
Track Invoices and Receivables
If you sent an invoice, it doesn’t mean you will 100% get paid. Make sure to track active invoices that still require payments. It’s possible to avoid overpaying taxes by tracking company invoices.
According to a contract, the best tip is to send an invoice immediately after finishing the job. Immediate actions increase the chances of immediately getting paid. If not, keep sending formal and friendly reminders that a client owes money and has to pay for the job.
Another way to increase the chances of getting paid early on is to offer discounts based on quick payments. If the client immediately pays, then they receive a discount. To make the process of recording and tracking invoices even more convenient, try cloud-based accounting software. Usually, such applications automatically send reminders and show active invoices.
Be Prepared for Taxes
Experts recommend keeping books properly throughout each tax year. That way, it’s a lot easier to calculate taxable income, reduce the tax burden on a business by claiming reimbursements, etc.
Another important thing to remember is the tax calendar. The IRS changes due dates to submit forms and schedules in some cases. The best option, in this case, is to make sure a business is signed up for regular reminders via email.
Ask Professional Tax Preparation Help
Filing taxes is a tedious task, but it should be completed. Businesses have to properly fill out all the tax return forms to the IRS to avoid problems and significant fines.
The best option, in this case, is to hire a professional who can take care of taxes. If you already have an accountant, it’s most likely they work with taxes. Make sure the accountant can take care of taxes and calculate all potential deductibles.
Use Financial Reports to Make Decisions
One of the reasons why it’s useful for a company to have a personal bookkeeper is getting financial reports. But even if a company handles books on its own, it’s still possible to collect financial data to make decisions.
For example, the company is tracking receipts and business expenses. Based on the collected data, the manager or owner of a company can analyze whether all expenses are reasonable.
Financial data collected through bookkeeping helps with future decisions. If it’s clear that the company generates stable income and books are in order, then it’s possible to consider major investments to get better outcomes.
Author: Charles Lutwidge