Top 9 Accounting Tips for Small Businesses

As a small business owner, there is no end to your to-do list. Getting some basic business practices in order early on and developing healthy habits for managing your accounting, expenses, accounts receivable/payable, and so forth can keep you organized and focused on what really matters – building your business.

Here are our top 9 accounting tips for small businesses:

  1. Separate personal and business expenses 

Set up dedicated bank accounts for business and personal finances so that you can accurately track and easily reference expenses for your company. If you’re contributing capital to your business from your personal assets, be sure to accurately document them.

You cannot deduct personal expenses on a business tax return, therefore having your expenses separated will make your tax preparation simpler. If you are using your property for both personal and professional use, a portion of the expense can be deducted. 

Depending on your business structure, having separate business banking and credit can also limit your legal exposure to business debts.

  1. Accurately document income 

Keep tabs on all sources of incoming cash flow – revenue from sales, loans, and other cash infusions. You want to ensure that you pay accurate taxes on all income to avoid penalties later. Your chosen accounting method will determine how you document these as well as the aforementioned expenses.

  1. Invest in proper accounting tools

Whatever is quick and easy can be appealing, but it is important to set up habits that will provide long-lasting benefits and security. Investing in proper accounting tools, like software, can help minimize the steps needed to track your expenses and income. Software like Intuit’s QuickBooks can sync directly with your bank accounts and pull in transactions automatically for your review. You can also use it on your own, or partner with a professional accountant to be sure you’re on track.

  1. Dedicate time to updating your books

Set aside a regular day and time to check in with your accounting. Look over your expenses, revenue and track anything that is outstanding. Software can help you keep a leg up on this by auto-categorizing your transactions and reconciling your bank accounts and credit cards. Be sure to stick to your date/time and make it a habit so that you don’t fall behind.

  1. Learn how to run basic accounting statements

Again, this is another step that is vastly easier when you’re using a software that can produce statements. But no matter what your process, learn how to generate the basics like a Profit & Loss Statement. This will give you a snapshot of your organization from period to period and allow you to compare spending and revenue. You will be able to identify any issues fairly quickly and assess if any changes need to be made to meet your financial goals. 

  1. Monitor labor costs

Paying employees, including yourself, can account for the largest portion of your business’ budget. Pay special attention to overtime hours, perks, and other benefits you offer to prevent over- or under-paying. Your accountant or accounting software should also be able to help you calculate and pay your payroll taxes, which have different rules and deadlines than income taxes.

  1. Plan ahead for major expenses

It’s easier to plan for routine expenses like computer updates, new equipment and tax payments. However, larger capital expenses often come up without warning, so having some funds to help cover emergencies is good practice. There is also an IRS provision called Section 179 that lets you deduct up to $1 million of business property and equipment in the year of purchase, instead of depreciating the equipment year over year. So even if you feel the pinch of large purchases now, you might benefit from tax breaks later.

  1. Maintain Inventory and Follow Up on Accounts Receivable and Payable

The more organized you are with your accounting, the better. If you’re in an industry where you have inventory, keep detailed accounts of purchase date, cost, stock numbers, date sold, sold price, etc. The devil is in the details and keeping track of each item makes it less likely that you’ll have to spend extra replacing misplaced or stolen goods. 

Also, be sure to stay on top of accounts receivable and payable. Just because you send out an invoice doesn’t mean payment is on the way. Be sure to send reminders and make payments easy to accept. Accounting software can streamline and automate this process and make it convenient for your customers to pay quickly.

  1. Hire an accounting/bookkeeping professional

If you haven’t already, hiring accounting and bookkeeping support for even just a few hours a week or month, can make a big difference. They can help you classify expenses and income, file taxes and think strategically about your business.

A professional will also keep your records up-to-date and orderly, and they are better equipped to know about potential fees, loopholes, or additional tax deductions for which you might be eligible. Understanding different IRS provisions and requirements can help you get tax advantages and save time. 

If you need accounting and bookkeeping assistance, please give us a call at 208-577-6665.