Managing finances is the most terrifying aspect of running a business for many business owners. If you do not have the ability to manage your finances, you will face serious financial difficulties.Fortunately, the simplest money management skills are often learned, albeit you’ve never balanced a checkbook before. Here are some of the top small business accounting tips that you should know about and that you should refer to regularly.
1. Keep accurate records
When you own a startup, you need to learn how to do small business accounting and record-keeping. Most of your daily accounting data can be easily tracked online through your credit card and bank records. However, it is important to keep all of this collected information in one location so that you can review it at a glance.
Many small business owners invest in software that simplifies small business accounting. Invest in software that allows you to track the flow of money and has a built-in invoice function. Your accountant will thank you when it comes time to file your taxes.
2. Open a business bank account
When personal and professional finances are combined, the results can be disastrous. One of the first steps you should take when starting a new business is to open a new bank account in your business name.
Keeping your personal and professional finances completely separate makes tracking the flow of cash a breeze. Plus, having a separate bank account also makes your life a lot easier when tax filing season rolls around.
If your business is a sole proprietorship, you are not legally required to open a separate bank account for your business, but it is strongly recommended that you do so. Before you can open a business account, you need a business name and it must be registered in your state or province.
3. Save all your receipts
You may think that you don’t need to keep receipts, as virtually all purchases are made electronically. However, sales receipts contain dates and details of expenses that can be very helpful for future reference.
Don’t make the mistake of throwing all your receipts into one folder. Instead, organize them by category.
4. Get information on how to bill accurately
For most new business owners, billing is an unfamiliar concept, but specific details about various transactions need to be recorded. They also urge customers to make payments on time. Accurate billing can help you keep track of customers who consistently don’t pay within the agreed period and can help you stay organized.
Never make changes to an approved invoice, and never create multiple versions of the same invoice. Changing an invoice after it has been sent to a customer will only confuse you, your customers, and your accountant. it’ll also make the process of the asset chaotic and inefficient.
5. Create profit and loss statements
Profit and loss statements can offer you snapshots of the financial health of your business. A profit and loss statement summarizes the expenses, costs, and income your business incurs during specific dates. It is also known as an income statement, statement of financial results, or statement of operations and can reveal important information about your company’s ability to make a profit.
Before you can prepare an income statement, you will need to collect the following information:
- Petty cash transactions and all other activity occurring in the midst of receipts
- Keep track of all purchases made with your business credit cards and checking account.
- Information about returns, discounts, and price reductions that you have offered to customers.
- All sources of revenue, including credit card payments, checks, and cash, received by your company
- For each of the items listed above, including the total year as well as the quarterly amount. You will then need to go through the process of creating your profit and loss statement.
6. Get donation receipts
If you frequently donate to charities but don’t receive receipts, it’s time to change your ways. You can receive tax benefits for all money and donations given to charities, but you need to have receipts to deduct them from your taxes.
7. Collect taxes at the time of sale.
Always collect taxes at the time of sale to avoid paying a large sum of taxes at the end of the year. You won’t also have to worry about late tax penalties if you collect or apply them at the time of sale.
Whether you’re a math whiz or your Bookkeeping skills need a little help, anyone can learn how to manage their business finances. Follow these simple Bookkeeping tips to urge your business finances so as and avoid common tax mistakes.
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