When you launch a firm as a self-employed, you experience liberty and independence. However, it is critical to remember you still have some managerial tasks you must perform. As an individual entrepreneur, you belong to the self-employed category and have a set of directives and tax standards to adhere to. Let’s discuss why sole trader bookkeeping is a vital element of every firm and how to make your books as balanced as possible.
The Importance of sole proprietors accounting
Bookkeeping ensures a clear record of all economic operations of your sole proprietorship or, in other words, the control of capital inflow and outflow, as well as the sum of money in your bank account. Precise and correct sole trader bookkeeping is vital because it allows the business owner to:
- Control overall revenue, and determine which products or services bring the maximum profit.
- Ensure he accurately records all expenditures incurred to draw up all financial documents.
- Plan your tax liabilities to prevent penalties.
- Calculation and forecasting of costs.
- Optimize cash flow, etc.
Accounting is critical to creating accurate and legible financial papers, such as the balance sheet and income statements. If you develop good accounting practices, it will be simpler to require the tax credits you are entitled to from the government without anxiety about claims from the IRS.
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.
Do I need a bookkeeper as a sole proprietor?
Once you launch individual entrepreneurship, you don’t have to hire an experienced bookkeeper immediately. If you have the free hours and talent in bookkeeping, there are no causes why you can’t record transactions and create an income statement and balance sheet yourself. However, we recommend you go through initial training or find a proficient who controls so that you do not go astray and perform all the manipulations correctly.
If you’ve decided to partner with a professional accountant, ensure you’re not just looking for the cheapest option. We encourage you to research to find the most qualified applicants, check their references, and interact with the candidates in person. You must feel comfortable interacting with them and know they will maintain your business in any way they can.
The principal accounting mistakes that sole traders make
While many entrepreneurs are tempted to do bookkeeping as self-employed, there is a considerable risk of making errors. Let’s analyze a few fundamental inaccuracies that can be avoided by using the services of a professional bookkeeper:
- Last-minute financial work: often, self-employed think about accounting only during the tax period because they consider it a waste of time, but this opinion is erroneous. Modern financial applications allow you to record the inflow and outflow of capital at the time of the transaction, ensuring the simplicity of economic activity.
- Refusal to keep receipts: often, self-employed persons throw away invoices for small amounts, but a substantial amount accumulates during the financial year. Develop a valuable habit of saving all accounts related to your entrepreneurship, regardless of the transaction amount. A qualified accountant will tell you how to automate tasks that do not store many papers.
- Reluctance to divide individual and business finances: for many sole proprietors, personal expenses are inseparable from business expenses, so having a single bank account seems like a rational solution until it comes to bank reconciliation. We advise registering a new business account to make life easier and ensure business records’ accuracy.
Due to the limited number of transactions, sole traders often refuse to calculate the budget. In fact, you need to identify available funds to invest effectively to get a short and long-term return. We advise you to consult with a professional bookkeeper to budget for the development of your entrepreneurship.
Bookkeeping tips for the sole proprietor
Registering as a sole trader is one of the most accessible business options. A limited set of documents, a minimum of legal complications, simple accounting and taxation – and you will become your boss. However, to develop a successful firm, you need to follow a few guidelines:
- Start storing business records: if you control the inflow and outflow of capital and also, on our recommendation, create a separate business account, then it will be simpler to prepare reports and calculate the number of tax payments.
- Keep the receipts: when the moment of self-esteem comes, you will be happy that you saved all the bills. Receipts are an essential element of any expenditure control connected with your business. Save a folder with all your receipts, or take a screenshot every time you launch your business application.
- Carefully consider the possibility of reimbursement of expenditures: if you are the sole proprietor making your job from home, you can claim the return of a portion of the business costs, e.g., travel expenses, equipment rental, etc. Many categories of spending decrease your tax base.
- Get ready to pay mandatory payments: try to put aside at least 20% of your monthly proceeds to prevent an unpleasant dialogue with tax institutions.
Many people contact bookkeepers only for the preparation of economic statements. However, economic specialists can offer a broader checklist of services. They are ready to provide advice and recommendations that guarantee your business’s commercial stability and prosperity.
An optimal software for individual entrepreneurs
Sole proprietors often devise the idea of implementing spreadsheets to monitor their financial data. However, spreadsheet platforms, e.g., Microsoft Excel, do not have the same functionality as advanced V sole trader bookkeeping software. We recommend paying attention to the next accounting digital solutions:
- Xero is an excellent variant that pairs perfectly with skilled bookkeepers’ personalized services. Such an application allows you to automate most of the work, including mailing to counterparties, customer invoicing, and monitoring banking operations to renew records.
- QuickBooks allows you to eliminate any inaccuracies in processing your company’s records. You can access the platform on any gadget, track insights in real-time and reconcile from any bank account. You may send personalized bills to buyers utilizing your smartphone or tablet to maintain an impeccable business image.
- EasyBooks is an application that guarantees significant time savings. It allows you to generate quotations, transform them into invoices and monitor the flow of capital in real time. A distinctive feature of such a platform is the ability to make a backup copy of data. If you are tired of dealing with spreadsheets and are afraid of losing your paper records, this option will please you.
Companies confident in their products’ quality are often willing to offer users the full benefits of a trial version. Find out if it is possible to register for free in the selected financial digital product. Test the platform, get used to it, and evaluate whether it has the necessary functionality.
Bookstime’s qualified accountants are ready to take care of the bookkeeping on your behalf, saving you a lot of time and money so you can do what you’re an expert at – maintaining and expanding your firm. We set loyal prices and provide the most modern program to facilitate your activities.
Bookstime offers a range of online financial services to assist you in monitoring all your manipulations and ensure a smoother procedure of digitally sending invoices to buyers. Having complete economic insights lets you make informed decisions about the future direction of your entrepreneurship. Order a call on our website to arrange a consultation and learn more about our bookkeeping services that may save you from endless financial hassle.