For me, the "New Year" feels like it begins now, in the Spring. Everything is beginning to come to life again after a long winter; birds begin to sing again, flowers begin to bloom, trees begin to bud. In my work, it also feels like the beginning of a new year because around this time of year is when most of the hustle and bustle of tax preparation is beginning to subside and make way for the new First Quarter End, where I like to check in with my clients and take that first detailed look at where they are at, and where it looks like they are headed.
And so, being that this is when it feels like a New Year for me, I wanted to begin blogging on my website. I am in my 4th year as a business and since beginning my own business I've learned much about myself, my business, and my clients. I'd like to start getting my thoughts out here, physically, to share and reflect on, and hopefully add some value to other business owners looking for content like this.
For this first blog I would like to share my tips on what I believe are the foundations to any new business as it pertains to it's financial record keeping. I work with clients who are brand new, or have recently started their own business within the last year or two. Starting out, many new business owners are focused on what it is they are providing in the way of a product or service, and not so much on administrative, procedure, or record keeping - but these are equally as important to the well being of your business and it's potential for growth. These are key issues every new business owner should do, or get help with doing.
1. Separate bank accounts / Credit Cards for business purposes. Whether you are incorporated, an LLC, or a sole proprietor - keeping a separate place for your business transactions to occur away from your personal transactions is a critical thing to do. Many banks provide free checking accounts, and so keeping track of your income and expenses becomes much less of an effort by having one.
2. Use your business accounts for Business ONLY. What good is having separate accounts if you're going to interchange business and personal expenses within it? Use your business account for business activities only.
3. Calculate your "Owner Draw" early on. Typically new businesses don't bring in huge dollars for its owner(s) in the beginning. But you should get used to the idea of taking a regular Draw from your business to pay yourself. Hopefully, you are making enough in revenues to cover the basic personal expenses such as rent or mortgage payment, personal utilities, car payment/insurance, groceries, ect.
When I first started my business, I came up with the amount I needed to pay my necessary bills, and took bi-monthly draws to cover that amount. As your business grows, you can increase this draw, and also begin setting aside additional funds for your Estimated Tax Payments. (More on that in a future blog!)
4. Save all receipts, electronically whenever possible! The purpose of receipts is mostly for audit backup. The IRS allows for receipts to be in electronic format, so whenever that cashier asks if you want your receipt emailed to you, say yes, and have a special folder in your inbox for business related receipts that you can have sent directly to that folder. You can then save those images to an external drive that you have set up so that they are backed up for as long as you need them (I'd say 6 years, as most audits go back 3 years but can go back as far as the IRS can demonstrate that you have not filed an accurate / complete return). Likewise, bills from Vendors can be saved this way as well, and if paid online also have record of payment stored with the electronic invoice. Invoices to your customers and their payments can be also stored this way.
5. Utilize the most effective means of tracking your economic activity as you can. Even if it is downloading your banking activity into a csv worksheet that you then add descriptors such as "office expense" or "meals and entertainment" in the adjacent column - be sure to do something to track all of your activity on as often a schedule as you can keep up with. Maybe it's monthly, or weekly. If it is daily, I would most definitely suggest that you use something like Quickbooks Online to help minimize the time spent on this activity. Showing up with a box of receipts at tax time is extremely inefficient and I can certainly assume that many of your deductible expenses are being overlooked. You also will be charged a heck of a lot more for the preparation of your taxes if your information is not concise and reported neatly. Income may also be overlooked, and if you don't claim all of it, you'll very likely invite an audit or at the least, receive a bill for tax due and penalty and interest for not filing and paying timely.
I plan on starting webinars / trainings on how to create these simple spreadsheets in the near future. There are also many videos on YouTube that show you the basics of using excel. Please check these out, and make use of the info.
Thank you for reading along, and keep your eye out for more blog topics in the coming weeks! Happy Spring!
Amanda
