There are 22 million small businesses in the U.S. that have no employees, as the U.S. Census reports. Each of these businesses must use similar accounting practices that large corporations use. Efficient accounting means you have better visibility of how your business is doing, which is important when forecasting your future growth. The following tips teach you important accounting skills to keep your business financially healthy and growing:
Keep Your Accounts Separate
Forbes stresses that you start out your business with separate banking and credit card accounts. Mixing the two makes it confusing later when you do financial reporting and taxes. You won’t know how your business is doing unless you separate the personal from the business financial transactions. If you used your credit card to pay the day care, buy groceries, and purchase a printer last month, you’ll have to spend time separating things so you have a clear picture of the business finances.
Start Out with Tools That Help
You might be tempted to get a ledger book and do your accounting manually, or you may try to use a spreadsheet on your computer. Because of the affordability of small business accounting systems, you can do a professional job from the beginning. Many systems, such as Intuit’s accounting software for small businesses, walk you through the creation of all of your financial accounts. You’ll set up your accounting practices correctly from the start, and automate many of the routine bookkeeping tasks.
Accounting is a Daily Task
Don’t let your bookkeeping pile up for days or weeks, and then try to make sense of it. Get into the habit of working with your books every day, even if nothing changes. Look at what you spent and what you brought in, and look for trends. As you collect more data, you’ll be able to see how your revenue and expenses fluctuate throughout the year. You’ll then be able to forecast what your business might do in the future which drives your growth plans.
Keeping current with your accounting tasks is especially true at month and year end, as Best Personal Finance News explains. Keep your information updated at these times so you’ll have better visibility of the business each month and be ready for tax time.
Watch Your Receivables
Whether you are selling jewelry online or baking cakes for local events, make sure that you are getting paid for it. Get your invoices out promptly and track them. Most accounting systems do invoicing, so you can easily see who pays on time and who doesn’t. Your business cash flow depends on customers paying their bills. Send out reminders to customers who are late. Find the repeat offenders and either limit the work you do for them, or require cash on delivery of the product or service.
Track All of Your Expenses
The Small Business Administration has many useful articles that explain small business accounting. They can also help you understand which expenses to track. This is especially important during tax season.
Take the time to learn about the deductions you can make during tax time to save money. One that is typically misunderstood is the deduction for your home office space, as Fox Business highlights. You can’t work on the living room coffee table and mark off that space as a deduction. You must have a space that is dedicated to business use. When you do set up a space, even if it’s just a folding table in the corner of a room, measure the space and get the full deduction for it. By tracking your household utilities, you’ll also be able to take a percentage of them as a business deduction.