Even if finances are not your strength, you should know some accounting and record-keeping practices to make sure your company stays out of the red.
While hiring a certified public accountant (CPA) may be a good solution, you may not be able to afford it if you’re just starting out or you’re running a small business. These tips can keep you and your business on track financially.
Know the Financial Laws
Make sure you know your requirements for local, state and federal tax preparation, as well as payroll and income tax withholdings.
The Small Business Administration’s “Record Keeping for a Small Business” participant guide details which records need to be kept and for how long.
- Business correspondence – 3 years
- Invoices and receivables – 5 years
- Payroll records – 6 years (subject to business-specific requirements)
- Employee withholding – 7 years
Use Accounting Software
Gone are the days of file boxes full of receipts and invoices. Accounting software will not only force you to stay organized by requiring you to enter certain information, but it may automatically generate necessary financial statements or track the payment of customers’ invoices.
Before you go out and buy any accounting program, ask yourself:
- Who is going to use it?
- How much is it going to cost?
- How would you like to use the software (e.g., on your phone, tablet, desktop)?
- What would you like it to do for you?
- What type of support does it include?
Collect and File Your Taxes
When you make a sale, collect sales tax. When you do payroll, withhold income taxes. The more time that goes by between a transaction and accounting activities, the higher the chance you may make a mistake.
Small business mentoring group SCORE recommends planning ahead to make sure you have enough to pay taxes and avoid facing fines for being late on your tax payments. If you need a reminder, the Internal Revenue Service has tools to help.
Keep Your Receipts
Keep all your receipts for business expenses or contributions, like donations to the local animal rescue. You’ll be happy that you did come tax time. Sure, you could argue “The Cohen Rule” (using other credible evidence to prove your expense is business-related) or rely on IRS Publication 463, which says you don’t need receipts for expenses less than $75. But why risk it? An easy method for saving all your receipts is to snap a photo with your phone and send them to a folder on your computer. Your accounting software may even require it.
Send Out Invoices
You should generate invoices when you deliver a product or perform a service, according to SCORE. And set up a due date for customers to pay you. It will help you get paid promptly and enable you to keep track of any money due.
Of course, you want to be understanding and flexible with your customers – because they’re paying the bills (unless they’re not). Just don’t let them take advantage of you. Carefully track what has been paid, follow up as soon as it’s late, penalize payments that go beyond the grace period and deny fulfilling new orders or requests until outstanding invoices are paid. Your payment policy – and how strictly you enforce it – can make or break your business.
Prepare a Profit and Loss Statement
A profit and loss statement (P&L) should be prepared periodically so you can review how well your business is doing. Although, it’s up to you how often you prepare a P&L report, you should do it at least quarterly as a check-in.
If your accounting software automatically generates a report, be sure to review it. It will detail the revenue and expenses of your business, which can help you make financial decisions for the next period. It will also reveal any trends or seasonal fluctuations in your company so you can better prepare for these times.
These tips will help you get by without a CPA. Keeping up with your company’s financial health takes time. So be sure to secure a spot on your calendar each week to dedicate to financial activities.