According to research, over 20% of small businesses fail after the first year. One of the main reasons these business owners experience this is that they do not understand how to properly manage books. Running a business is hard work, and it can be even harder if you’re not organized.
One of the most important things to organize as a business owner is your books. If you don’t keep track of your expenses and income, you could end up in big trouble with the IRS. In this blog post, we will discuss some tips on how to properly manage your books.
Open a Business Bank Account
The first thing you need to do is open a business bank account. Keeping your personal and business finances separate is crucial for several reasons, including taxes and liability protection. If your personal funds are mixed with your business’s money, it can be challenging to keep track of what’s going on in each area.
For example, if there was ever a lawsuit against your business, the court could freeze your personal bank account to pay any damages. When you have a separate business bank account, it’s easier to keep track of your expenses and income. You can also write off certain business expenses on your taxes if you document them correctly.
If you’re just starting your business, it’s a good idea to have a separate bank account, credit card, and PayPal account. When setting up your business bank account, make sure to ask about the following:
- Business checking account
- Free online banking and bill pay
- Business debit card
- Merchant services to accept credit cards
If you already have a personal bank account, it’s not too difficult to switch over to a business checking account. Just make sure to discuss this with your banker so they can help you transfer any funds and close your old account.
Establish a Bookkeeping System
Once you have your business bank account set up, it’s crucial to establish a bookkeeping system. This includes using accounting software or hiring an accountant that can help you keep track of everything on a monthly basis. There are many different types of accounting software available today, each one with its own set of features.
If you’re not comfortable using accounting software or don’t have the time to do so, you may want to consider hiring a bookkeeper. A good bookkeeper can help you properly manage books and be up-to-date on your finances. They can also help you with monthly and quarterly taxes, so you don’t have to worry about making mistakes.
Keeping track of your finances is crucial to the success of your business. Without doing so, it’s very easy to fall behind in payments or forget about certain expenses that need to be paid on time. You’ll save yourself a lot of headaches by keeping everything organized and setting up a bookkeeping system.
Use a Cash Flow Statement
A cash flow statement is another important document to keep track of when managing your books. This statement shows how much money is coming in and out of your business on a monthly basis. It can be helpful in predicting future cash flow problems and solving them before they become too big.
There are many different types of cash flow statements, depending on what type of business you have. Some examples include income statements, which show income and expenses for a set period of time, and cash flow projections, which estimate how much money will be coming in and going out over the next few months.
You can also include a balance sheet showing the assets, liabilities, and equity of a business as of a specific date. If you’re not sure how to create a cash flow statement, there are many templates available online.
Create a Payroll System
Payroll is one of the most important aspects to keep track of when managing your books. If you don’t pay your employees on time, they may quit or even sue you for back wages. It’s best to be proactive and create a payroll system that works well for everyone involved.
When creating this system, make sure to include the following:
- How often employees will be paid (weekly, bi-weekly, monthly)
- What type of payment system you will use (direct deposit, check, PayPal)
- Employee tax information
- Hourly rates or salary amounts
You can find a lot of helpful resources online when it comes to creating a payroll system. Just make sure you research your options and talk to an accountant or banker who can help with any questions or concerns you might have.
Determine Your Tax Obligations
One of the most important things to keep in mind when managing your books is your tax obligations. Every business has different tax requirements, so it’s best to consult with an accountant or tax specialist to find out what you need to do. Some common types of taxes businesses have to deal with include:
- Income tax
- Employment tax
- Sales tax
- Excise tax
- Property tax
It’s important to stay on top of your taxes, as not doing so can result in hefty fines and penalties. Make sure you know when your taxes are due and set aside enough money each month to cover them. This will help keep you from running into any financial trouble down the road.
Find the Best Accounting Professionals
While managing your books may seem like a lot of work at first, it can be made easier by hiring the right professionals. If you’re not sure where to start looking for accountants or bookkeepers, ask other business owners in your area for recommendations.
You might also want to contact local universities and community colleges about graduates who would be interested in doing bookkeeping work for your business. When interviewing potential candidates, be sure to ask them:
- How much experience do they have with bookkeeping/accounting
- What type of software they are familiar with
- Are they comfortable working with financial data
- Can they provide references
By hiring the right professionals, you can make managing your books a lot easier and less stressful. Be sure to keep in mind your business’s specific needs and requirements, and find someone who is willing to work with you long-term.
How to Manage Books: The Ultimate Guide
There are many things to consider if you want to properly manage books, but by following these tips, you can make the process a lot easier. Remember to stay organized and be proactive about your tax obligations.
By doing so, you can avoid any financial problems down the road. If you feel all this is too complex, contact us and we’ll be more than glad to manage your books for you.
