Poorly tracked finances can leave you in a whole world of hurt. Managing your finances correctly allows you to make massive tax savings, avoid penalties, and keep tabs on your business’s financial progress.
Running a small or medium-sized business is challenging because you need to think about the numbers while managing product development, marketing, and customer relations. Don’t let it become an afterthought. Follow these tips for SMB bookkeeping success.
1.Separate Your Personal and Business Expenses
One of the most common mistakes entrepreneurs make is failing to separate their personal and business expenses. While it might not seem like a big deal, in the beginning, small business owners can easily find themselves trapped in a cycle of charging everything to their personal credit cards.
Set up a business bank account in your business name and ensure you have a separate credit card. It separates your accounts and ensures that your business can begin building a credit rating from day one.
While you can get away with not separating your expenses temporarily, you should endeavor to rectify the situation as soon as possible.
2. Embrace the Power of Automation
Automation is taking the business world by storm. Yet only 31% of businesses had automated at least one function by the end of 2020. Automation enhances your productivity and allows you to focus on the other aspects of your business.
But how do you automate bookkeeping?
Invest in a cloud-based bookkeeping software option. By combining your internal numbers and your business bank account, you can synchronize everything and ensure you have the latest numbers in real-time.
More importantly, the cloud is useful for backing up your sensitive financial data at a third-party location. Should the worst happen, you’ll always have immediate access to your data again. Disaster management plans can keep your business running regardless of your obstacles.
3. Stop Putting Off Your Bookkeeping
Too many entrepreneurs leave bookkeeping as an afterthought. In other words, they wait until it’s one week before tax filing season or two days before the end of the scheduled financial quarter to look over the books.
The value of bookkeeping and bookkeeping services is not merely about meeting deadlines. It’s about regular financial checkups to perform economic forecasts, monitor growth, and find patterns in your finances.
Ideally, every business should be inspecting its books weekly. Set aside a scheduled time for your bookkeeping obligations.
4. Perform a Comprehensive Quarterly Review
Many people mistakenly associate the quarterly review with massive corporations. Yet small and medium-sized businesses can also benefit from deep-diving into their numbers at the end of every financial quarter.
Almost half of small and mid-sized firms use cloud-based accounting software, which comes with many of the functions necessary to search for vital trends. Yet hiring a professional bookkeeper can also support you in finding these patterns.
Some of the patterns you want to look for include:
- Year-on-year revenues
- Late-paying customers
- Growing/declining sales
During your quarterly review, you can also produce forecasts for future growth. These reviews are essential for defining your strategy for the coming quarter.
5. Renew Your Focus on Record Keeping
Your business expenses are an excellent source of tax savings. Most expenses can be deducted from your taxes each year. Yet changes to the tax code in 2018 meant it became much more complex.
Anything you want to claim must have a corresponding record. Rather than maintaining boxes and boxes of invoices, get into the habit of automatically scanning anything new and digitizing your documents.
Simplify your expense tracking by using a business bank account for purchases and bookkeeping software.
If you are unlucky enough to be audited by the IRS, you will be expected to produce documentation relating to every expense.
6. Keep Watch Over Accounts Receivable
Accounts receivable details everything your business is expected to receive in income. Cash flow is everything in the business world. In fact, 82% of small businesses fail due to poor cash flow management.
It doesn’t matter how big of an invoice you just sent out. Until that invoice is paid, your business cannot take advantage of any of that cash. Non-paying customers are a serious liability for any business, and without a firm grasp of your accounts receivable, you cannot stay on top of these problems.
Set up automated systems for contacting customers who have missed a payment deadline. It’s also worth setting up payment plans with customers who cannot pay one big lump sum.
What matters is that you stay on top of everything.
7. Set Tax Deadlines in Stone
Tax deadlines represent a severe problem for businesses. Massive penalties can ensue if you fail to file and pay on time.
The IRS provides a clear tax calendar for businesses so they know when they need to file and when they need to pay. Unfortunately, many of these deadlines changed due to the pandemic — with extensions being given automatically on payments.
If you believe you will miss a deadline, inform the IRS as soon as humanly possible. Simply waiting and begging for forgiveness will win you nothing but a huge fine. Make sure you file for an extension. In most cases, the IRS will grant it without any fuss.
Finally, it is wise to prepare your taxes as early as possible. Entrepreneurs tend to underestimate how long it takes to prepare their taxes and ensure everything is in order.
Unless you are an experienced bookkeeper or accountant, hire a bookkeeper in advance. Professional bookkeepers are invaluable in ensuring your taxes are as hassle-free as possible. Let them take on the burden and get the maximum tax savings on your final bill.
Bookkeeping is no small undertaking. Your business needs a bookkeeper not only for tax filing season but also to monitor the financial health of your business, create forecasts, and report to relevant stakeholders.
Hiring a professional bookkeeper is an investment that can yield a hefty return in tax savings and efficiency. Combine state-of-the-art bookkeeping and accountancy technology, and you have a winning combination.
Has your business hired a professional bookkeeper to manage your company’s numbers yet?