Accounting may not be the most thrilling aspect of following your dreams with a small business, but keeping track of your expenses is most certainly a foundation of success. Only when the books are in order can entrepreneurs truly focus on their specialties and follow the passions that brought their ideas to market in the first place. Despite the frequent complexities of doing the numbers, a few relatively simple tips can help even the greenest of solopreneurs get a handle on the balance sheet.
Track Every Business Expense
When it comes to making sure that all of your large and small expenditures are properly recorded—yes, there’s an app for that. Like any other part of business operations, it’s important to have the right tools. Expense-tracking software has become increasingly affordable, providing the smallest of businesses the ease of making sure they are not missing out on important tax deductions. Products ranging from FreshBooks to QuickBooks have jettisoned the tedious manual input of receipts. And, when that expense-tracking is integrated with a business’s larger software, it’s not only easier for employees to track meals and mileage, but saves time for a staff bookkeeper with larger numbers to crunch.
Separate Your Business and Personal Expenses
Even in the smallest of small operations, it is important to draw a thick line between the business and its chief cook and bottle washer. Things can get complicated for both the business and its owner, especially around tax time, if the lines get too blurry. Even a solopreneur needs to think of himself and his business as two separate entities. It is easy to set up a small-business banking account and apply for a business credit card. It is also important to establish a DUNS number for the business in order to establish a credit history that is completely separate—for good or bad—from the business’s owner.
Be Prepared for Unexpected Expenses
It has been said that a wise man learns to expect the unexpected—and that is especially true in business. Despite comprehensive budgeting and the best-laid plans of mice and businessmen, the key is to plan for the things that could go wrong—because almost all of them will, eventually. An emergency fund or a special line of credit will come in handy when equipment fails. Although the careful tracking of business expenses should help keep the IRS at bay, it is a good idea to have the cost of professional services built into the annual budget. Other things like insurance and supplier-cost increases may be handled through a rainy-day fund or perhaps even built-in budget items. Potential rent increases and damaged goods are other factors that a smart entrepreneur needs to consider.
Hire a Professional Bookkeeper
A new business may not need its own accountant, but it almost certainly will require a bookkeeper at some point. Even if a business owner has financial know-how, the founder of a burgeoning startup will probably be too busy with strategy, marketing, and the product or service itself to have time—or frankly, the passion—for the crucial task of balancing books. Everything from a business’s credit and cash flow to all-important employee relations may hinge on the work of a well-trained bookkeeper. The detailed world of accounts, both receivable and payable, adds up to more than just peace of mind. A skilled bookkeeper with experience in a particular industry can help lower a business’s tax bill by keeping a bird’s eye view of deductible expenses. Even the cost of hiring a bookkeeper is tax deductible.
Record Your Income Accurately Each Month
Simply stated, a business’s daily income is money that has been received—regardless of expenses—by the end of the day. While it may not be practical to record every smaller transaction, the daily totals are important. Aside from the operational benefits of solid recordkeeping, a hands-on approach will help small-business owners keep an eye on day-to-day operations. Recording income weekly—or even daily—on a cashbook, accounting software, or a spreadsheet—pays off in more ways than one, including more accurate records when they are needed down the road. Each month, the bookkeeper should print out a balance sheet, an income statement, and a comparison to the previous month’s numbers. This should help with operations and signal any potential need to cut back on expenses.
