Time to turn the calendar not only to a new year but a new decade. What a wonderful time to take stock of how things are and make plans for the best possible years ahead. Here are some of the very best accounting tips for small business in 2020.
Technology - If you haven’t heard this by now, where have you been? Technology rules. Automate every single thing you can. There is no reason to run your business like a mid-century tribute to Mad Men. Computerize. Digitize. Simplify. You can find an App for just about everything you can imagine. Get them. Learn them. Use them!
But Don’t Neglect - Just because you have technology managing things certain aspects of your business, you need to stay involved. The best apps are ones that you can fine-tune to your preferences. Analyze your metrics. Customize the way your Apps run. What’s great for one company might not be the same for yours.
Look at your Financial Reports - There are three reports every business owner should study at least once a week:
- Profit and Loss - the total of Sales you made minus the total of Expenses you paid for. What’s left at the bottom is your Profit. Or Loss. Get acquainted with this report and use it regularly.
- Balance Sheet - a listing of assets (things you have) and liabilities (things you owe). The difference between these two is your equity. Obviously, you would like to have more Assets and fewer Liabilities. This report is a measure of your company’s health. Take your pulse.
- Accounts Receivable Aging - this is a list of how much money your customers owe you and how long they’ve owed it. This report shows you why you don’t have cash in your bank account. If it’s still in your customer’s bank account, work on moving it to yours.
Pay attention to details - New business owners make some mistakes because they don’t know any better. Ignorance may be bliss, but the IRS won’t accept it as an excuse. Here are some common pitfalls:
- Commingling your expenses. Yes, you own the business. That money is yours. But that doesn’t mean you can spend it on a pedicure, a vacation to Hawaii, or even a cup of coffee. Do not pay for personal expenses with company funds! There are a lot of legal reasons why you should not. Plus, you will see a false picture of your P&L statement (see above) if you’ve entered personal expenses as business transactions.
- Employees vs. Contractors - Many business owners are lured into the pitfall of making people contractors instead of employees to “save” the payroll taxes. This can be a huge problem. The people you pay must meet specific criteria to be classified as an independent contractor instead of an employee. Make sure you’ve got it right. There can be fines of many thousands of dollars if you misclassify your workers. Check out IRS.gov for more details.
- Keep Receipts - The IRS does not accept your credit card statement as a “receipt.” If you’re audited, they will want to see the actual document provided to you by the merchant. Since many of the printed receipts fade easily, you may want to look at a Receipt Capture system. Digital receipts are allowed.
- Pay taxes - This seems obvious, but make sure you’ve paid all of them to every entity in your geographical district. Do you owe the state? Your town? Your county? Make sure you’re aware. “I didn’t know” is not an acceptable excuse for any organization.
- Get an Accounting Professional - The Small Business Association (SBA) reports that about 30 percent of new businesses fail in the first year, and more than half by the fifth year. But those who enlist the aid of a professional accountant can increase their odds of success by as much as 80 percent! Get the guidance you need to make sure you’ve nailed all the items on your To-Do list. Even better, make sure you know the To-Don’ts!
Carefully Monitor Accounts Receivable - As mentioned above, you want to be diligent about watching how much you are owed and by whom. When you're first starting, making sales are a reason to celebrate. But don't forget that assuring you're making the proper amount to become a fruitful company is critical. An automated A/R system can help speed up this process. InvoiceSherpa has customizable email templates for a variety of communications with your customers, such as payment reminders, friendly thank you notes, and even stern warnings for past due accounts. Make it easy, and you'll get paid faster. Isn't that a great way to start the new year?