top 3 bookkeeping tips for small businesses
CONGRATULATIONS, YOU DECIDED TO START YOUR OWN BUSINESS! YOU ARE MAKING A LITTLE MONEY AND SPENDING A LITTLE MONEY. YOU WANT TO MAKE SURE YOUR DUCKS ARE IN A ROW, BUT DON’T EVEN KNOW WHERE TO START. WELL, I’M HERE TO HELP! HERE ARE MY TOP 3 BOOKKEEPING TIPS FOR NEW BUSINESS OWNERS.
KEEP BUSINESS AND PERSONAL SEPARATE
One of the most common (and messiest) mistakes business owners make is mixing their personal and business spending. When you are using your personal debit card to buy things for both your home-life and your business - it’s difficult to tell what is what - and which expenses are truly business-related. Ultimately, there will be no way to tell how your business is performing and make things very busy for your CPA at tax time.
You need to treat your business as a separate entity because it is. Even if you are a sole proprietorship. A common misconception is that you don’t need to worry about separating your personal and business life until you are an LLC. Not true! As soon as you start to receive payments for services (or products) – you should open a business account.
So go ahead and open a *new* business checking/savings account and business credit cards ASAP! And only use your business accounts for business expenses. Oh and, don’t forget to save your receipts!
HAVE A SYSTEM IN PLACE: TRACK INCOME, EXPENSES, AND SAVING FOR ESTIMATED TAXES
I strongly suggest using an accounting software system to keep your business books in order (Quickbooks Online is my favorite), but that might seem overwhelming when you are just starting out.
A simple excel spreadsheet is a fantastic DIY starting point. All money coming in (income) and going out (expenses) should be tracked and tied back to your business checking/savings and credit card statements on a monthly basis to make sure you don’t miss anything.
You will also want to keep a record of receipts for any expenses (generally anything over $25), including recurring charges. A simple scan and drop into Google Drive will do the trick!
While you are tracking your income and expenses, you should also calculate and save for your estimated quarterly taxes. If you are expected to owe more than $1,000 in taxes, you should be paying estimated quarterly taxes. How much will depend on your exact situation, but a good rule of thumb is to save about 30% of your net profit for federal payments. State payments vary based on your state’s income tax rate. Make sure to consult with your CPA on this!
CATEGORIZE YOUR BUSINESS EXPENSES: THE MORE BUSINESS EXPENSES YOU TRACK, THE LOWER YOUR TAX LIABILITY
The biggest reason small business owners miss out on taxable expenses is because they don’t have a tracking system (see #2). And the more closely you track your expenses, the lower your tax liability. Just remember, all business expenses should be necessary and ordinary - so don’t try and write off that $300 fancy pen...
You may be asking yourself – can I deduct this? Chances are you probably can! A lot will depend on your specific industry, but here are the 7 most common tax deductions you should be keeping track of:
Advertising and marketing expenses (New business cards, website hosting costs)
Contract labor (Do you have a virtual assistant? That is a business expense)
Insurance (Professional liability, property, workers comp).
Professional services (legal, accounting, and consulting fees)
Office supplies (paper, pens, printers, new laptop)
Rent or lease (paid by the business for office/store space)
Payment processing fees (PayPal, Stripe, etc)
Keeping your books in tip-top shape can be tedious and time consuming. Just keep in mind, the more organized and efficient you are, the more confidence you will have in your business finances. And even if you’re not ready to hire a professional to keep tabs on your business bookkeeping yet, you’ll have a much better picture of your books if you stay on top of everything now. Not to mention, you’ll be much less stressed at tax time!
MEET THE AUTHOR
tania pacheco
Tania understands first-hand the challenges small business and entrepreneurs face — she comes from a family of small business owners and has over a decade of bookkeeping and accounting experience in a variety of industries, including 4 years of accounting experience at a bio-pharma marketing agency and a tech start-up. Through her company, TP Bookkeeping, Tania offers customized solutions to to address your unique accounting needs.
Tania can be found at tpbookkeeping.com and can be reached at tania@tpbookkeeping.com.