It’s that time of the year — the time to fill out taxes for your business. Whether you’re calm or groaning at the mere mention of the T-word depends on if you’ve kept your finances organized throughout the year. If you haven’t, don’t feel bad because you’re probably not the only small business that isn’t ready.
Keeping your finances organized can be tedious and time-consuming, but it’s a crucial part of running a business. You can make it easier on yourself by keeping your business income separate from your personal one, or by just investing in the right accounting software.
Although this advice may come a bit too late (or not if you’ve just opened your business), here are a few ways to organize your business finances in time for next year.
1. Track Your Income
The first step is to determine what your finances are. Track your revenue daily, weekly, or monthly to find out how much money you’re bringing to the table.
You can use a spreadsheet if you want to separate your finances into categories so that you can see what areas are bringing you the most income. Doing this has another benefit than just keeping you organized. If you have a specific income goal in mind, you’ll know as soon as you reach it.
Another way to track your revenue is to use bookkeeping software, but we’ll get into that a little later.
2. Track and Audit Expenses
You don’t only have to track the money that you’re bringing in, but your expenses as well. If you don’t do it, you could end up making less money than what you gross.
By tracking and auditing all of your expenses, you can see the exact amount you are spending. This will help you keep track of it so that you don’t spend more money than you have in the bank. It also makes things easier during tax time when you want to deduct your expenses.
3. Separate Your Personal Funds from Your Business Funds
It can be hard to keep your funds organized when you have both your business and personal income lumped together. If you keep it all in one bank account, you won’t be able to determine what belongs to you and what belongs to the business. This will have you tearing your hair out when tax time rolls around.
At the end of the day, it is easier to have one account that you put money in for your business and another one for personal expenses. You’ll receive a bank statement at the end of the month, and as long as you keep up with those, things will be smooth sailing.
4. Protect Your Business
Another reason you want to keep your business and personal expenses separate is to protect yourself. Consider getting business insurance or establishing an LLC or S-Corp to do this.
This will ensure that if your business ever gets into legal trouble, your personal assets won’t get dragged into the matter. Protecting your business is the best way to protect yourself and your family.
5. Think about How You’ll Recieve Payments
Before you start tracking your payments, you need to decide how you’re going to get paid. This factor depends on how you’ve set your business up. For example, if you’re providing services, then sending out invoices is a viable option.
On the flip side of that, if you sell products, you might want to set things up so you can accept credit card payments either at your brick and mortar store or on your website. Either way, play around with different payment methods to find one that works for you.
6. Sort Your Hard Copies and Digitalize Them
Keeping all of your expenses on paper can get messy and tedious after a while. Additionally, paper documents can get lost or destroyed at some point. That’s why it’s a good idea to digitalize all of your records.
You don’t have to do this for everything and possibly shouldn’t for security reasons. If you don’t want to put any files on your computer, make sure you keep them organized in a filing cabinet of sorts.
7. Schedule Regular Reviews
The life of a businessman is a busy one. That’s why you need to open your calendar and schedule a day each week to sit down and go over all of your business finances, so you don’t fall behind with it.
If you let it all pile up, you’ll lose track of not only your finances but what’s going on in your business in general. Procrastination is the one thing that will lead your business into debt the quickest.
8. Obtain an EIN
An EIN is a tax number for your business. It makes opening a checking and savings account for it go a lot faster. You’ll also be able to start up a self-employed retirement plan and give this number to those you do business with.
Being able to provide your EIN instead of more confidential information will allow you to avoid identity theft. It only takes about five minutes to set up, it’s free, and it’s completely worth it.
9. Open a Business Credit Card
Using a debit card to pay for your expenses is great, but a better option is using a business credit card to pay for your expenses. It will allow you to build credit for your business — not to mention the perks and rewards that many credit card companies offer.
This includes cash, consumer protection, lower liability, and of course, detailed expense reports.
10. Use Small Business Accounting Software
A great way to keep up with all of the things we mentioned above is using accounting software rather than just keeping everything in a big spreadsheet. Not only is it quicker, but it is a lot more accurate.
Here are a few good ones that you should consider.
FreshBooks has a fantastic user interface that is sleek and simple to use. It makes it easy for your team members to collaborate. If you have an Android or iOS device, you’ll be able to check your information no matter where you are.
Sometimes when you decide to receive payment by sending out invoices, companies will use the excuse that they’ve never received an invoice as a reason for not paying. FreshBooks tells you when the company opened the invoice so you can call these people out.
It also has features that allow you to track past and current invoices, so you’ll be able to keep things organized and easily find unpaid invoices.
Sage 50cloud is a flexible solution, giving you the horsepower of desktop software but the portable convenience of the Cloud. You’ll never have to worry about your information falling into the wrong hands because it offers security that rivals most banks.
When you’re a small-sized or even medium-sized business, you may worry about being able to afford accounting software, but Sage 50cloud is fairly cheap.
It makes tax season easy for both you and your accountant because it has built-in checks and balances features. Your records will be organized and ready for you to check anytime, anywhere.
Sometimes, it can be hard for you to get the hang of new software, but Sage 50cloud makes things more comfortable with its 24-hour training and support system.
FreeAgent provides you with all the tools that a small business owner, freelancer, or contractor could ever need. Its interface also makes it easy for you to navigate and see all of your information right there on your dashboard.
It organizes all of your expenses by currency and links them with the projects and activities that they correspond to. Everything gets tracked and documented as soon as the invoice is paid.
You’ll be able to attach a link to various payment systems, so it’s easy for you to not only get paid but get paid quickly. Lastly, it imports all of your bank statements to make keeping track of your finances even more manageable.
How to Keep Your Business Finances Organized and Make Tax Time Easier
Tax time can be stressful if you don’t keep all your business finances organized throughout the year. You could be left with sifting through piles and piles of paperwork that could have been avoided if you’d just put them on your computer. Use these tips to make sure you aren’t caught off guard when the end of the year rolls around.
As a small business owner, you probably know how important it is to be ready for audits. Keep reading to find out more ways on how to organize your finances so that you can be better prepared when this time comes.