As a new business owner, keeping both your organization’s and your personal finances organized can be a daunting task. Getting everything in order for tax season can be especially challenging, as any lost bill or receipt or any untracked expense may have a damaging effect on your tax filing process and risks putting you in the hot seat with the IRS.
Despite the risks of managing your own finances, it seems more than 50% of small business owners fail to use the technologies available to help them organize their budget and expenses, according to a GoDaddy survey. About 46% of respondents don’t even use the services of a certified accountant.
The following are some useful tips from Forbes Finance Council experts to help your business keep clear and organized financial records that will make your annual tax filing a breeze.
1. Use Accounting Software
If the thought of that scares you, consider QuickBooks Self-Employed. It allows you to connect to your bank account and categorize your business and personal expenses as they hit your bank. You can also capture copies of your receipts. When you are ready for more reports and financial data, then moving into an accounting package is your best bet. – Marjorie Adams, Fourlane
2. Set Money Aside For Taxes
It is critical to set aside at least 25% of your net income for personal income taxes. If you are a startup, then set up a separate savings account to avoid the temptation of spending the IRS’s money. Then, you can transfer quarterly your estimated tax bill online through www.EFTPS.gov. – Darryl Lyons, PAX Financial Group LLC
3. Stop Mixing Business With Personal
Separate your personal finances from your business finances. This will enable you to have a better handle on cash flow throughout the year, and you will be less likely to dip into your personal savings to cover gaps in business revenue and vice versa. Separating your business expenditures and revenue will save you so much time and make tax season a lot less stressful. – Chad Otar, Excel Capital Management, Inc
4. Don’t Overcomplicate Things
There are only about 10 line items most companies need to track for the IRS. Start with the end in mind, so pull out the tax form that applies to your business, choose the categories that apply to you and lump expenses in those buckets as the year goes. Don’t slip into the trap of adding 50 lines because you are unsure of what to track. – Matthew May, Acuity
5. Stay Proactive
Make sure your accountant provides you with a monthly process that officially closes the books with a full reconciliation, etc. This will help ensure that you don’t wake up with a huge surprise on April 15th . – Cole Harmonson, Far West Capital
6. Buy A Desk Calendar
Record all revenue sources on the calendar month to month. By the end of the year, you will essentially have a monthly breakdown of your revenue. Expense tracking is also simple if you use a single credit card or track all vendors you’re spending money with. Alternatively, use software like Xero or FreshBooks and connect your accounts. – Ismael Wrixen, FE International
7. Use A Cloud-Based Tool
Managing payments across vendors and customers is both a headache and mission critical. However, many small business processes are still offline: manual and time-consuming to manage. Digitizing payables and receivables will eliminate costly and antiquated check payments, reduce time and provide greater insight into the business. – René Lacerte, Bill.com
8. Break Down The Effort
Your business’ financial health should be broken down into five parts: bookkeeping effort, payroll compliance, tax planning, insurance and financial planning. The providers of these services should be separate companies, and the total cost of servicing all sections should be about 2 % of the business’ gross income. – Perry Dalessio, D’Alessio Tocci & Pell, LLP