Small Business Bookkeeping
When it comes to paperwork for a business, hardly anything is more important than the books. A business’s accounting documents tell the owner whether they’re making a profit or not, how to improve profits, and how much taxes they need to pay. Bookkeeping is something that cannot be ignored if you want your business to be both run well, and run legally. Many small businesses actually end up closing down due to poor bookkeeping practices when the tax bill comes due. You can use several resources to ensure you are on-track, but none of the resources will do the work of entering your information into the software you purchase.
If you’re in the USA you can learn a lot about bookkeeping for small businesses for free right on the IRS site. In many cases it’s more information than you need, but it is good to take a look at the resources available to you. You can even sign up for a newsletter focused on your area so that you can get alerts to new laws and new requirements and more. But in general all bookkeeping does is keep track of income and expenses.
When you realize that bookkeeping is simply keeping track of what goes in and what goes out of your business, it becomes a lot less scary. You don’t need to understand debits and credits to understand that what goes out is an expense, and what comes in is income. Most of the software you use provides this information without having to use a general ledger even.
To take that further regarding expenses, anything that is necessary to run your business is considered an expense. There are some special rules regarding expenses that you should take a look at. One of the best books you can buy regarding small business taxes is Small Business Taxes Made Easy by Eva Rosenberg. She truly does make it simple and less scary.
We are really lucky today to live in the era of technology. Today there are software programs that can help you keep track automatically of your income and expenses, and that will work fine for a super small business. There are also a few more complicated programs to help you if you have a more complicated business. It is important that you use some software like Quickbooks, Zero or You Need A Budget to keep track of your income and expenses. Alternatively, you can use a simple spreadsheet. However, people who use automated programs who do not have a bookkeeper tend to do better with keeping track.
Let me take a moment to explain You Need A Budget because at first glance it seems like a home budgeting program. I use it in my business, and I love it! What it does is keep you from spending what you don’t have. You spend/allocate money to spend once you have earned it. So if your intake for the month is $10,000 – normally you might budget that all out and determine that you can spend X dollars here or there. With YNAB, you allocate it as you earn it. So if you only deposit once a month, you’d then account for the $10,000 as earned income, then you would assign it to certain categories – inventory purchases, employee pay, etc. It’s great to keep you from overspending and see where you are supposed to be.
In addition to the technology available, it’s good to still have the old-fashioned shoe box in which to keep all receipts associated with your business. If you make it a practice to put receipts in your in box, enter them if needed into your spreadsheet or software, then toss them into a shoe box or file for the end of the year, you’ll save yourself a lot of hassle and time when it comes to doing your taxes. I also scan in my items using a Neat Scanner to keep them in the cloud – I have a Dropbox subscription. That way they are not faded examples of what they once were when you need them later.
I believe that taxes are not so easy to do even when the proper books have been kept and receipts have been saved, that the taxes should be done by a qualified accountant. As a matter of fact, advice from the accountant throughout the year will keep you on track. When you’re done with your taxes, print out a copy for yourself, put them in a manila envelope with your receipts and other paperwork, write the year on the outside and store in a secure location for at least 7 years.
If you do choose to hire an accountant or a bookkeeper, be sure to check to see if they are licensed and have kept their certifications up-to-date. The American Institute of Professional Bookkeepers (AIPB.org) offers a free bookkeepers’ hiring test to any business owner who is thinking of hiring a bookkeeper. This is an essential step to hiring someone because even if you hire an expert, when it comes to being compliant with the law you are the one ultimately responsible. So make sure you understand everything they do and everything you sign.
IRS Bookkeeping Information
Small Business Taxes Made Easy by Eva Rosenberg
Bookkeeping Hiring Test
Have you hired a bookkeeper or do you do the books yourself? Some people find it very helpful to do them, others procrastinate so much it’s hard on the business to keep up once they do decide to do them. Try YNAB to keep up if that’s your problem.