For many business owners, managing finances is the scariest aspect of owning a business. Unfortunately, accounting plays a vital role in businesses of every size but often becomes a low priority for small business owners, specifically, as they juggle all the other responsibilities of managing and maintaining day-to-day operations.
Fortunately, ace money management skills can be learned, even if you’ve never balanced a checkbook before. To help you improve your business, luminablog.co.uk has compiled 5 must-know small business accounting tips you should refer to regularly.
Budget for Tax
Even though you might be rolling in the big bucks and made a profit, not all of the money is yours as you’ll need to hand some over to the taxman. A good rule to follow is that you budget for this as you go along so that you’re not massively shocked at the end of the year.
Even if you’re a digital business, you may want to budget for tax and learn how to take care of the Digital Services Tax Management aspects of your business. The Digital Services Tax (DST) is the 3% tax rate proposed by the European Commission (EC) on revenues derived from online advertising services, receipts or income from digital intermediary activities, and sales of user-collected data.
If you have a savings account or something similar, set a little bit of your income aside so that you can easily pay off your tax bill without any worries and enjoy the rest of your profit.
Keep Accurate Records
When you own a startup, you need to learn how to do accounting and record keeping for small businesses. Most of your day-to-day accounting details can be easily tracked online via your credit card and banking records. However, it’s important to keep all this information compiled in one location so you can review it at a glance.
Many business owners invest in software that makes it easier to do bookkeeping for small businesses. Invest in software that allows you to track the money flow and has an integrated invoice feature. Your accountant will thank you when the time comes to file your taxes.
Open A Business Bank Account
When you mix personal and professional finances, the results can be disastrous. One of the first steps you should take when starting a new business is opening a new bank account under your business name.
Keeping your personal and professional finances completely separate makes tracking the flow of money a breeze. Plus, having a separate bank account also makes your life much easier when tax filing season rolls around.
If your company is a sole proprietorship, you aren’t legally required to open a separate bank account for your business, but it is still strongly recommended that you do so. Before you can open a business account, you need a business name, and it must be registered with your state or province.
Keep All Your Receipts
You might think it’s unnecessary to keep receipts since practically every purchase is electronic. However, sales slips contain dates and expense details that can be very helpful for future reference.
Don’t make the mistake of just tossing all your receipts into a single folder. Instead, organize them based on category.
When tax filing season rolls around, this will make things much easier for you and help you make accurate deductions. It will also help you keep track of where most of your money is going so you can cut back in specific areas in the future.
Learn How to Invoice Accurately
For most new business owners invoicing is an unfamiliar concept, but it’s necessary to record specific details about various transactions. They also prompt clients to make payments on time. Accurate invoicing can help you keep track of clients who consistently fail to pay within the agreed-upon period and can help you stay organized.
Never add to an invoice after it has been finalized and never create multiple versions of the same invoice. Making changes to an invoice after submitting to a customer will only confuse you, your clients and your accountant. It will also make the accounts receivable process chaotic and inefficient.