Running a business isn’t all sunshine and rainbows. While there are a lot of benefits you can get from it, you also end up having a lot of responsibilities that need to be managed day in and day out to ensure that your business is running smoothly. Some of your duties include paying your taxes, managing your accounts, and tracking your income and expenses. Of course, you can always hire people to do those things for you. However, when you are just starting out, you won’t always have the funds necessary to hire professionals for tax or accounting services
For today’s blog, we will talk about an essential skill that every business owner must have, and that is how to track your business income and expenses. For small business owners, in particular, this skill is even more essential.
Here’s how you do it:
Open Separate Financial Accounts for Your Business
You may think it's alright to use your personal accounts at first. But as time goes by and your business grows, you will find it more difficult to differentiate your personal and business finances. This will become a big problem come tax time because you will be digging for business income and expenses among your personal purchases. Not only that, but the professional you hire for tax services will also have a lot of trouble with that. To avoid this problem, set up separate financial accounts that you will be strictly using for your business only.
Store Receipts Properly
When it comes to tracking expenses, keeping your receipts is crucial.
Paper receipts are easy to lose, especially when not stored properly. To make sure you remember where they are and you don't lose a single one, keep paper receipts in a separate envelope in your bag or purse. This will make it easier for you to file them properly when you have the time. Store them in separate file folders. Make one for each month at the beginning of the year and file your receipts at the appropriate month. Binders are another option if you don't want to use file folders. Remember that the IRS requires all small business owners to keep paper receipts and supporting documentation for at least three years.
Digital receipts are easier to keep track of since you can simply use an application to do that. Also, you can scan your paper receipts if you don't want to go through the hassle of filing and organizing them manually.
Choose an Accounting Method
Before you can fully start tracking your income and expenses, you should choose which accounting method you want to use. The two main methods are Cash Basis and Accrual Basis.
The Cash Basis method is perfect for small business owners. It involves recording your income when you receive it and your expenses when you make payment.
The Accrual Basis is more complex since it uses additional accounting categories. For this method, you will record income and expenses as you incur them, regardless of when you pay or receive money.
Record Expenses and Track Income Regularly
Make sure to record your business expenses often so you know where your business stands. It will also help you accurately track your income and give you an idea of whether you need to cut back on some of your business expenses. Do this at least once a month so you are fully aware of what you can and cannot do. It will also help you determine the next best course of action.
If you carefully track your business’ income and expenses, then you won’t have a lot of problems during tax season. Still, it can be challenging to handle everything on your own. So if you need accounting services, call Nicholas J. Coco in Kearny, NJ. As a CPA, he is more than qualified to help you out with your business needs.