6 Accounting Tips for Small Businesses

When operating a small business, you barely have enough money to afford an accountant, which forces yourself to be self-reliant. This also means that there’s plenty of pressure to avoid screwing up your finances. To help prepare yourself as a small business owner to be just as good as accounting, here are six essential tips to follow for when dreaded tax season comes around.

  1. Maintain Accurate Records

Fortunately, most day-to-day business operations can be easily tracked via your online banking service, which can pocket your financial records nicely. Plus, regular debit and credit uses can be tracked via your online bank as well. But, when it comes to determining what was spent on your business or earned as income, things get a little trickier. You need to maintain accurate records of how much cash you spend on your business, what was purchased using which cards you own, and what kind of expense reimbursements you need to give your employees. You should seriously consider taking advantage of investing software like QuickBooks to simplify everything. This way, when Tax Day comes, you can keep yourself a little more organized and have a lower risk of mess ups.

  1. File Your Receipts Correctly

Although keeping track of all your receipts throughout the year can seem like quite the process, it will save you a few headaches during tax season. Now, you probably won’t be able to record every single receipt for your business accurately, but you should do the best you can. Since receipt ink can fade quickly, it’s important to scan them into your financial records for when you have to do your taxes. On top of that, in your financial records, you should accurately file them into specific categories to prevent duplications, errors, etc.

  1. Collect the Necessary Taxes

At the time of sale or during payroll, you have to take out the necessary taxes accurately. Just like we talked about with receipts, it’s important to simplify this process to lower your risk of error, which could set you back when you do your taxes. As soon as you make a sale or do payroll, take out the necessary taxes, the longer time you take to do so, the larger margin of error. Plus, doing this will prevent you from needing to pay a huge lump sum of money when tax season comes around in addition to other fees from late tax payments.

  1. Accurately Invoice Your Customers

Invoices are so much more than just prompts for your customers to make a payment. To you, they’re records of a transaction, which is why they need to be completely accurate. However, it’s also important that you know the difference between a receipt and an invoice. Cancelling or editing an invoice a few of times can cause serious confusion to you and your accountant if you have one. Plus, accurately invoicing your customers means you’ll also have an agreement to terms available as well. This agreement should outline your policies and how your business operates.

  1. Get Receipts for Donations and Contributions

When you contribute to nonprofits and other organizations, your company can receive tax benefits. However, for every contribution you make, you have to get a receipt to validate it. Just keep in mind, if you don’t have this receipt when you do your taxes, your tax write-offs may be denied. This is why it’s so important to keep yourself financially organized and get receipts every time your company makes a contribution or donation.

  1. Create Profit and Loss Statements

Profit and loss statements or a P&L is a great way for small business to check up on the overall health of their establishment. They can offer your business a summary of the different areas of your company and how they did either monthly, quarterly, or yearly. However, it’s crucial to your business’s success that you correctly record and update your P&L, so your accountant is properly briefed.

Accounting for your small businesses is never an easy task, especially if you double as both the small business owner and accountant. Hopefully, with the help of our guide, you can better prepare for the upcoming tax season and improve the way you handle your finances.

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