When you began your small business you knew you would have to manage its finances but it’s amazing how few hours are in a day when you’re getting a business off the ground. Keeping accurate records is really the only way to know if your business is making money and it can be the best way to secure financing. If your record-keeping has become haphazard and you’re afraid of handing your accountant a shoebox of forms come tax season, read on for four ways to get your finances in order.
Learn and Use Accounting Software
It can be easy to be lax about the accounting side of your business, especially if you’re a one-man operation. Regardless of the number of employees, you need to be tracking everything and it’s much easier to do if you’re using a program like QuickBooks Pro from Intuit. While QuickBooks is a business standard, there are many options out there. No matter what you choose, realize that setting up the program assumes a basic level of double-entry bookkeeping knowledge on your part. If you aren’t familiar with the system it’s a good idea to hire someone to set up your accounts or simply take a class. Accounting software will allow you to easily run payroll when you’re ready to hire employees and keeping all your finances up-to-date means you can effortlessly run reports that will help you get funding either from a business loan or investors.
Keep Personal Finances Separate
The best accounting software in the world can’t help you if you don’t learn to keep your personal and business finances separate. Open a business checking and savings and apply for a business credit card. Don’t use these accounts for your personal expenses. This includes making personal purchases on business accounts which you then pay back; it’s just a bad idea. Most banks and credit cards are able to load statements directly into your software which you can then quickly review and customize before accepting. Loading personal purchases will throw off all of your reporting and raise red flags if you’re ever audited.
Save for Taxes
Businesses pay income taxes quarterly so set aside money each month to have those quarterly payments ready. You’ll also be paying the sales tax you collected and the employee portion of Social Security and Medicare taxes you withheld from employee checks. Remember that you’re also liable for an equal portion of those same payroll taxes that comes directly out of your pocket.
This is all to say, you are responsible for many payments you may not be expecting if your background isn’t in business or accounting. Work with a tax accountant to figure out your monthly EBITDA. Take 30%, or so, of that amount to set aside in your business savings account. That amount should handily cover all of the taxes you’ll be paying. While an accountant may be pricey, it is nothing to the cost of fines and late fees if you miscalculate or forget to pay.
Schedule Time for Updates
To really stay on top of your finances, schedule time each day to update your records. If sales don’t automatically flow into your accounting software take time each day to enter your sales and always enter expenses as they happen. Make sure to reconcile all of your accounts on a monthly basis. It’s much easier to catch a mistake if it happened in the previous month than if you have to search through a year or more of records to find something as simple as a transposition. You can’t be sure of the accuracy of unreconciled accounts and so reporting based on those numbers may not be accurate. Finally, schedule time at least quarterly to meet with your accountant. Look at proposed tax payments, EBITDA and funding options.
Staying on top of your finances is all about remembering how important they are to the welfare of your company and planning accordingly.
Guest Article by Kevin Gardner
Kevin Gardner graduated with a BS in Computer Science and an MBA from UCLA. He works as a business consultant for InnovateBTS where he helps companies integrate technology to improve performance. He shares his knowledge and expertise not only with his clients but with his fellow bloggers and readers.
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