When times are tough, the tough get going. While the COVID-19 pandemic has led to the demise of some small businesses, the uncertainty has sparked a wave of entrepreneurship among many, spurring the launch of an unprecedented number of news.
According to the US Census Bureau, more than 4.4 million new businesses were started in the United States in 2020 – that’s 24.3% more than in 2019. In June 2021 alone, more than 448,000 new commercial requests have been filed.
As these new businesses take shape in a new and changing landscape, it’s important not to overlook the fundamentals that contribute to the long-term financial health of a business. While most business owners start a business because they have a passion, talent or profession to share with others, neglecting the administrative aspect of running a business can impact its longevity. .
The good news is that many of these missteps can be corrected by incorporating some of the best practices into the company’s accounting routine. Let’s explore the most common slippages and how to correct them.
Mix personal finance and business
Although running your business is a big part of your life, when it comes to your finances, you should always keep the business separate from the personal. Specifically, this applies to your bank accounts. If you don’t, it will be difficult to determine which expenses are business related and tax deductible.
Even if you have separate accounts for your business and personal finances, be careful when using personal funds to pay for business expenses. While a swipe of your personal map to cover an item here and there might seem trivial, they add up quickly over time and can be difficult to follow. Plus, you might forget to keep track of these expenses and miss out on tax savings down the line.
Accounting without bank connection
Once you’ve all created a separate business bank account, accounting for your business becomes easier as you can use bank data to track income and expenses. One thing you don’t want to get stuck with, however, is the tedious and time-consuming task of having to manually enter your bank details.
Using accounting software that digitally connects to your bank eliminates most of the manual entry and makes tracking sales and expenses much more efficient.
Do not keep records in a safe place (or not at all)
A small business owner asked us for help last February to get his books in order for tax season. But here’s the twist: They had put their receipts away in their desk drawer and had just completed a move across the country. During the move, the people they hired to help them move emptied the drawers and threw away the receipts, so they had no records of their expenses.
Even with a designated business account, it’s still important to keep records and documentation of your transactions. These will come in handy at tax time as well as if you are facing an audit. They’re also useful if you’re not sure what category an expense falls into, so that an accountant or tax professional can review the receipt and give their opinion.
The next time you make a transaction, scan your receipt and save it to your computer, or better yet, use accounting software that connects to your bank card and digitally archives receipts and invoice copies to keep them safe. safe place.
Not hiring the right professional for your business
One way to avoid some of the accounting work is to outsource the task completely. However, it can be a costly mistake if the person you hire doesn’t have the experience to match your needs. It may be tempting to turn to a friend for âfreeâ advice, or to a fellow entrepreneur who claims to have good control over their own finances, but keep in mind that individual needs are different.
Modern accounting and banking solutions can save business owners countless hours and headaches. These solutions are designed to save you time and help you feel in control of your finances. Coaching by qualified experts can help you take your growth to the next level and provide you with advice and ideas tailored to your needs. When business picks up and you have a lot to do, it makes sense to delegate the task of accounting while you focus on the big picture.
“Postpone” until tax season
Since accounting is a collection of small, separate tasks that build up over time, it can be difficult to tackle them all at once. Getting over it at the last minute can cause a lot of stress and lead to big mistakes.
The best thing you can do is set aside time throughout the year – I recommend at least quarterly and ideally once a month – to review your records and make sure everything is up to date and accurate.
Keeping an eye on your books throughout the year can also give you a better idea of ââyour cash flow, which can ultimately help you make more financially informed business decisions.
Almost two years after the start of the pandemic, it is clear that the business landscape has changed forever. While optimism is high for the millions of new small business owners across the country, the truth is that starting your own business is anything but guaranteed success. By taking a proactive and intentional approach to accounting, entrepreneurs can get themselves on the fast track to business longevity.