Bookkeeping is an important business task for every small business owner, but if you don’t like doing it, you’re not the only one. It’s always fun to look at your profits, but what about all the reports and categorizing? Maybe not as much!
Small business owners must be involved in the financial administration of their company to ensure that it is successful. Here are 5 bookkeeping tips and accounting ideas to keep things simple and help you analyze how accounting information can help your organization succeed.
1. Separate Personal And Business Finances
This is a reiteration of the Golden Rule. As it turns out, this is one of the most frequently broken rules. If you are self-employed or a freelancer, you should have a separate business bank account and a separate company credit card.
Your bookkeeper will have a much easier time categorizing and reconciling transactions if you remove all personal transactions from your business accounts. A number of small businesses we’ve worked with have had more than half of their transactions in their “business” accounts being personal. As a result, sorting through your personal finances can be a lengthy and costly process.
2. Make Sure You’re Getting Paid
As with any other employee, owners of C and S corps are required to pay themselves fair compensation and process it via a payroll system. Even though it’s an owner’s draw and so not included in payroll.
Self-employed business owners, freelancers, and partners should also pay themselves “wages.” It promotes the idea that your company is a separate entity, and it also eliminates the need for you to break the Golden Rule by having your company pay for your personal costs directly on your behalf. Paying your personal spending with a single check from the business each month instead of a series of transactions is a better way to keep track of your finances.
3. Repay Yourself For Business Expenses
Even if you try to avoid it, you will occasionally have to use personal funds to cover a business expense. Your business bank account is where these expenses should go, according to the Golden Rule. In order to do so, have your bookkeeper write you a check for the amount you paid with your own money. In other words, this shouldn’t be part of your regular paycheck.
Reimbursing yourself should follow the same rules as reimbursing your employees. Attach the receipts and a list of the expenses, including the date, the payee, and the intended use. After that, you’ll receive payment from your company in the form of a check. Since the expenses were paid with a check drawn on the company’s account, your bookkeeper will be sure to deduct them properly.
4. Mileage Tracking And Reimbursement
In 2022, you can deduct 58.5 cents per mile for any business mileage you drive in your personal vehicle for work purposes. To get reimbursed for your business travel expenses, keep track of the dates, mileage, and purpose of each trip.
Refer back to tip three for instructions on how to do this. As an alternative to manually entering all of your miles, QuickBooks Online uses your smartphone’s GPS to keep track of your mileage.
5. Keep Your Receipts Safe
The IRS requires receipts for all tax deductions. Paper receipts can be stored in a separate file folder for each payee or company, which is an old-fashioned manner of keeping track of receipts. Scanning receipts and adding an electronic copy to the transaction in your bookkeeping software is a more recent innovation. Many accounting systems include this feature for free.
Wrap up!
As you can see, it’s important to have a reliable accounting system that’s accurate. 20% of new businesses fail in their first year, and 50% fail within the first five years, according to the BLS in the United States.
Experts surveyed by Griffith University academics feel that the owner’s financial literacy, particularly their knowledge of accounting software, is a crucial component in determining the success of a small business. No one is making you keep the books, but you should know how to organize your financials so the books are easier and more accurate.
If you need help with your bookkeeping, be sure to give ROI Tax a call. We’re happy to discuss your bookkeeping situation with you and come up with the best solution together.
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