Save for Taxes
If you fail to put aside an adequate amount for your year-end taxes, you could be in for a nightmare this spring when tax season rolls around. The good news is that if you oversee your own business financials, you have control over how much money you are saving for tax season.
Reviewing your returns from the previous three to five years can help you determine how much you should be setting aside each month, but once you’ve set a reasonable figure, do not decrease this amount. It can be very easy to develop bad habits once you start borrowing a little here or a little there, so make sure that you are withholding consistent amounts on a predetermined day each month.
Modern accounting software has revolutionized small business bookkeeping. Most platforms provide everything you need to manage your company’s accounting, but that doesn’t mean you should settle for just any software.
Choose a software program that is specifically designed for small business owners, as these platforms will have built-in templates that allow you to easily input and track basic items, such as invoices, deposits, and check printing. By electing to use a cloud-based system, you can also access your files from anywhere and be sure that your information is securely stored in one reliable location.
The less cash you use to run your business, the better off you will be. As opposed to digital transactions, cash is extremely difficult to track, and if you’re hoping to write off significant expenses during tax season, cash makes it even harder to do so since there’s often little to no record of cash purchases.
However, by using debit or credit cards, you can track exactly how much you are spending, as well as when, where, and for what reason. Electronic payments help create an audit trail for you to reference should you ever need to substantiate any tax write-offs. You can also sync your company cards to your accounting software, which streamlines the entire bookkeeping process and helps ensure consistency and accuracy across the board.
Review Your Finances Regularly
The best way to keep up with your bookkeeping is to keep a strict schedule and vigorously review your company’s financials at least every other week. Twice each month, you should schedule roughly one to two hours to go over your company’s deposits, withdrawals, transfers, purchases, and other key items.
Even if you have invested in trustworthy software to help you manage your accounts, that software requires some human intervention and is still subject to human error. While reviewing your books isn’t the most glamorous task, the peace of mind that comes with having accurate records cannot be overstated.
Taking time to review will also give you a good opportunity to check your accounts receivable to ensure that your clients are paying their bills regularly and on time. If you notice any discrepancies or failure to pay, you can apply some gentle pressure so that your books will be current come tax season.
If you don’t have room in your busy schedule to review your finances on a regular basis, it might be time to start thinking about hiring a part-time bookkeeper ― we offer modest rates and excellent service. But be sure to use a bookkeeping service on a monthly or quarterly basis rather than waiting until the end of the year. This way, you can correct mistakes before they become something more troubling, and you’ll likely also get cheaper rates, as many services are looking to maintain consistent income during their off season.
Prepare for Major Expenses
If you fail to plan for major expenses, you will almost certainly find yourself regretting it at some point. This is especially true if you work in a highly competitive industry and are unable to take advantage of a golden opportunity simply because you do not have enough capital set aside.
However, saving requires a conservative approach to handling your day-to-day business needs. Be sure to save in minor increments over a scheduled period so you can continue to execute your daily operations at a high level; meanwhile, stash away a healthy rainy-day fund for future expenses like updated machinery or an upgrade to your company’s computer systems.
Compile all costs, including payroll payments and other overhead figures. Once you are confident that you have an accurate number, you also need to determine how much your business will need to clear each month to remain profitable, including the cost of insurance paid annually. From there you can detract average costs (be generous in your calculations) and then develop an accurate and ample savings schedule.