As a small business owner, you have a lot on your plate. You need to worry about product or service quality. You need concern yourself with marketing and advertising. You need to make decisions about branding. Of course, you also need to worry about bookkeeping, but it can be tempting to leave things dealing with business taxes to the last minute. That’s never advisable. In fact, it is absolutely crucial that your books are in order at all times. How do you do that without sacrificing the ability to actually run a successful business, though?
Don’t Toss Receipts
You should consider every single business expense in the light of a potential write-off on your company taxes. This applies to just about anything you can imagine, from business supplies like printer toner and paper to entertainment-related expenses incurred in the line of work. The IRS offers a lot of leeway in these sorts of deductions. The problem is that you may have to prove them, which means you need to have the receipts. Of course, having the receipts is key to knowing how much you’ve spent this year that could you could deduct on taxes anyway. Do not rely on credit card statements – you need actual, physical receipts.
Organize Receipts Numerically
Depending on the type of business you run, chances are good that you frequent the same establishments regularly. You might always buy your office supplies from one particular store, or you might always stay at a specific hotel when visiting a particular city for business. When you have multiple receipts from the same place (or even just the same chain), it can be difficult to organize them. However, if you log them numerically, you’ll discover it’s a lot easier to stay organized and keep your books up to date. Note that you create the numerical system to use, and then maintain it moving forward.
Note What’s What
One of the most important things is that you’re able to justify why you paid for specific things as business expenses. While that might be simple enough in the short term, it can be very difficult in the long term. And, make no mistake, the IRS may decide that they really, really want to know why you decided that $500 dinner you had two years ago was actually a business expense. Note on the receipt itself (or in a spreadsheet program or other software) what the expense was, why it relates to business, and, if possible, the specific client or customer in question. This helps ensure that you’ve dotted all your I’s and crossed all your T’s.
Summarize Regularly (and Stick with It)
It’s not enough to have proof that you’ve spent money, and that it was for business purposes. You also need to summarize your income and expenditure records on a regular basis. The period length doesn’t matter so much as just ensuring that you do it, and that you continue to do so throughout your business ownership. You can do it every daily, every week, or every month – it’s up to you. Just make sure that you update your records on a regular basis and that they’re as accurate as possible.
Keep Them Separated
You know this one, but it might slip from your mind during the press of personal shopping. Your business and personal expenses should never, ever, ever mix. Don’t do it. It doesn’t matter how much easier your business credit card is to reach in your wallet than your personal credit card, or how much higher the balance might be on that card. It also doesn’t matter that you really, really mean to pay your business account back so everything balances. Don’t mix personal expenses with business expenses. Ever. That way lies IRS auditing, inaccurate books and other really bad things.
Build Accurate Reports
Remember when we mentioned creating periodic summaries of your business expenses? You need to take that a step further and transform those summaries into full reports. These will illustrate how cash flows through your business, where it is being used more frequently, areas that need attention, and more.
Track People-Related Expenses
For most businesses, the people that actually run the company make up the bulk of expenses. That’s true whether you employ a hundred people, or you’re the only person working in the company. You need to track what you’re spending on things like:
- Perks offered (that don’t fall under any of the other headings)
Do the math now. Use that information to help inform your decisions, but also to ensure that your bookkeeping is up to snuff. When it comes to business taxes, you cannot afford even small discrepancies.
Make sure that you track outstanding invoices and follow up on them. These can get lost in the shuffle pretty easily. A single busy afternoon is enough for your accounts receivable department to become invisible, particularly if you’re the business owner and the only person running the A/R department. Wear too many hats, and you’ll find that your attention first frays, and then snaps, leaving you missing crucial pieces of data.
Hire a Professional
Perhaps the single most important tip for keeping your business books in order is to hire a professional. Experienced bookkeepers can provide you with a great deal more than just financial recording service. The right company can deliver crucial services and solutions tailored to your business, your niche market, and your growth goals. On top of that, the right firm will also be able to deliver tax strategizing and filing services to ensure that not only is your tax liability minimized, but that you stay on the good side of the IRS at all times. What business owner couldn’t benefit from that?