Bookkeeping Tips for Entrepreneurs
1. Plan for major expense outlays
Why it’s helpful: You’re less likely to miss business opportunities or have to scramble for a loan when a cash shortfall is looming.
Action: Put events like a major computer upgrade on the calendar a year in advance or, ideally, three to five years ahead. Acknowledge the seasonal ups and downs, something many entrepreneurs are reluctant to do.
You’ll avoid taking money out of the company during flush periods only to find yourself short in the slower months when costly projects (like upgrading computers or replacing factory components) happen.
2. Track expenses
Why it’s helpful: You otherwise might some miss tax write-offs and may lose out on others.
Action: A credit card that you use solely for business can be a basic accounting system. Most card statements categorize expenses so you can see which outlays relate to which business activities. If you always use your business credit card for business expenses, you’re less likely to pay cash and lose the receipts, thus forfeiting tax time write-offs. Such small expenses can add up.
As a matter of routine, jot down business trips, lunches, coffee dates and other events paid by cash in your electronic or paper day planner. This habit can go a long way toward substantiating those items for your tax records in the event of an audit.
3. Record deposits correctly
Why it’s helpful: You may be less likely to pay taxes on money that isn’t income.
Action: Adopt a system for keeping your financial activities straight, whether it’s a notebook you use consistently, an Excel spreadsheet, or accounting software. Business owners typically make a variety of deposits into their bank account through the year including loans, revenue from sales, and cash infusions from personal savings. The trouble at the end of the year can be that you or your bookkeeper might erroneously record some deposits as income, and consequently pay taxes on more money than you’ve actually earned.
4. Set aside money for taxes
Why it’s helpful: The IRS can (and will) levy penalties and interest for not filing quarterly tax returns on time.
Action: Systematically put a portion of money aside throughout the year for taxes. Note tax deadlines on your calendar—along with prep time if you need it—to make sure you actually make payments when they’re due.
Payroll taxes that go unpaid can be especially problematic. It’s a too common problem that cash-crunched entrepreneurs get through a down cycle by dipping into employee withholdings that they should have sent to the IRS.
via Practical Bookkeeping Tips for Entrepreneurs & Accountants.