Four Must-Know Accounting Tips for Your Small Business
Accounting is and always will be a critical function of the savvy business owner, but accounting doesn’t have to be a nightmare or something to dread. It just takes a little perseverance and planning to ensure that your records are as accurate and complete as possible.
You can make yourself (and your accountant!) happy by following the four accounting tips below. Each of these activities is an “accounting best practice” and represents steps to take throughout your fiscal year.
TIP 1: Keep Accurate Records
Much of your business’s day-to-day accounting can be handled and tracked via your online banking services, but what’s most important about your financial records is keeping everything in one place so you don’t have to scramble to meet a request, and for the sake of simplicity.
Online banking can track simple debits and credits to your account. However, when it comes time to accurately state how things were spent or earned, separate records absolutely must be kept. The records need to track things like how cash was spent, what things were purchased via credit card, whether reimbursements were made to employees, etc.
Everything you track will only help your accountant later on down the road — which is good news for you and your bottom line!
TIP 2: Sort and File Receipts
Keeping an accurate count and file of all receipts can seem tedious, but it will save a lot of headaches in the future. It’s a laudable goal to make sure you keep all receipts related to your business, but real receipt accounting goes well beyond just retaining them.
Receipts come in all shapes and sizes, and their ink fades over time. Photocopy (or scan) receipts to a standard letter-sized page, then collate them by date to correspond with your detailed financial records. Additionally, it will really help categorize the expense (and subsequent tax deduction) if you highlight the date and make notes about the reasons for expenses on the photocopied receipt page itself.
TIP 3: Collect Applicable Taxes
Taxes need to be taken out at the time of sale or at the time payroll is generated. Just like with receipts, the longer you go between transaction and proper accounting, the more room for error there is.
You need to collect (or apply) taxes as soon as a sale is made or immediately upon payroll generation. That will ensure that, a) you’re not liable for one lump tax sum at the end of the year, and b) you won’t incur penalties for delayed tax payments. This will help your accountant keep as much profit as possible.
TIP 4: Do Accurate Invoicing
Are invoices just prompts for your clients to make payments? No, they are much more! They’re records of the terms of a transaction, and because of this, it’s critical that you enter information that is accurate and complete.
Reworking or adding to an invoice, creating multiple versions, or canceling an erroneous invoice will only confuse the accounting (and accounts receivable) process … and your accountant. Don’t do it!
Additionally, accurate invoicing ensures that if any questions come up from your clients, you will be prepared with a record of previously-agreed-upon terms under which you and your clients operate.