These habits help to avoid trouble down the road

It’s a truism that entrepreneurs like to do things their own way – after all, it’s a big reason why you decided to set off on your own instead of working for somebody else and adhering to their rules and routines. Though having your own unique vision has innumerable advantages and innovation can lead to tremendous profitability and growth, when it comes to keeping the records of your business’ financial details, there’s a lot to be said for sticking to the tried and true methods. Though you may feel comfortable with keeping all of the details in your head, doing so can lead to oversights and mistakes that will have a negative impact on your bottom line, as well as on the impression that your potential clients have of your business. 

The best way to ensure that you always have the numbers you need readily at hand and can quickly assess your business’ financial health is to stick to some basic bookkeeping rules. Doing so will not only help you meet your own goals, but will make sure that you’re prepared in case you get a call from the Internal Revenue Service. The five steps that all entrepreneurs should follow to keep their financial house in order are:

1.    Keep track of what you’re spending. There are a lot of good reasons why you should do this, but the most important is that if you’ve written everything down, you can provide this information to a tax professional who can review it and let you know about potential tax write-offs that you may not have been aware of.  One of the best and easiest ways to track your expenses that serves to keep you from having to journal or jot down everything that you spend is to apply for a credit card that is specifically for business purposes. Doing so means that at the end of the year you can just hand over your statements for your accountant to review – and many credit card companies are making life easier by automatically categorizing your expenses each year. When you use your credit card for all of your business expenses – even the little ones – you avoid forgetting about the little out-of-pocket expenses that you have been paying for with cash, and that means that you have a much better chance of getting the full write-off that your business deserves.

Another way that you can double-up on keeping track of the various purposes behind your expenses is to notate them on your calendar – it makes it much easier to remember and document that a lunch receipt was from a meeting with a client that took place on that date, or on which dates you drove “X” number of miles for an appointment. The more detail you have available, the more easily you can answer any audit questions – and it would be nearly impossible to remember a year’s worth of travel or meetings without writing them down. If you want to save yourself a headache down the road, store the Google map link of your trip on your calendar so that you have the exact mileage and place that you went easily available.

2.    Put away money for taxes on a regular basis. You’re expected to pay quarterly tax returns on a regular schedule, so even if you feel confident that come tax time you’ll be able to simply write a check to the government for what you owe, doing so can put you in jeopardy of having to pay interest and penalties. The best way to handle this (and a good habit to get into) is to regularly take a portion of the money that you’re receiving and put it into a special account. Make sure you know when your quarterly payments are due and send the payments – it will make your April tax burden much less painful. It is particularly important to send taxes in on a timely basis when it comes to paying payroll taxes – far too many business owners see their withholdings as a convenient cash account, leading to a lot of trouble down the road.

3.    Don’t get lax about your accounts receivable balances. Though it’s easy to just assume that a payment will eventually come in, there’s a good chance that it’s late for a reason and you don’t want to allow a customer to get too far behind. Even if the client is eventually going to pay, failing to collect in a timely manner is essentially the same as providing an interest free loan, and ends up hurting your cash flow. Make sure that you have a staff member who is dedicated to this task, sending out reminders and making calls to keep payments coming in on a timely basis.

4.    Create a schedule of when you’ll be making big purchases, because failing to do so leaves you at risk of suddenly having to spend money on an emergency basis. For example, if you fail to anticipate that your printer is going to break down or that your computers are outdated and will need to be upgraded, you not only are failing to budget for the expenditure, but are potentially putting yourself into a position where you don’t have the time to do the appropriate research, or have to pull money out of your accounts during your slowest time of year. Know your needs and plan for them.

5.    Pay attention to detail when recording deposits. This may sound obvious, but with the wide variety of deposits that you make into your business’ accounts throughout the year, it is essential that loans, cash infusions from personal savings and revenue from sales be carefully tracked and differentiated. Any deposit that is recorded without demarcation could be mistakenly counted as income – and there’s no reason to pay the government any more than you owe them. The best way to keep your records straight is to establish a system and stick to it. It doesn’t matter whether you’re using a spreadsheet, a journal, or even a checkbook – just make sure that you write down the details each and every time and you’ll find that at the end of the year, it’s much easier to add everything up correctly.

I have a passion for Tax and Accounting. If you have a small business in NYC, I can help. Call 646-807-9995 today!