Keeping Track of Your Finances
When you are in the beginning phases of launching your business, the most important thing to remember is to document everything. From keeping receipts to processing employee payroll, it all must be tracked and recorded so the IRS can determine the taxes your business will have to pay. Keeping clean books and a close eye on your accounts will help ensure that your cash flow is on pace month-over-month. It is vital to develop good habits around your bookkeeping right from the beginning.
Let’s explore a few ways you can audit your business finances:
Pen, Paper, and a Shoebox
Believe it or not, there are still entrepreneurs and small businesses who rely on the traditional method of pen, paper, and a shoebox. This is especially true for those with simple businesses that have minimal transactions. Don't dismiss this method just because it's outdated - it can still be effective.
Implementing the latest payment technology can be expensive, and sometimes it's more practical to maintain a paper trail of customer invoices or payments made in cash or by check. If this resonates with your business, make sure to keep these essential items on hand:
- Safeguard all of your receipts, documenting both the payments you make and receive.
- Maintain a detailed record of your past, present, and future jobs in a trustworthy receipt book.
- Create a written archive of your valued customers, noting their frequency of interaction and the amount that they contribute.
Of course, we understand that ideally, a more accurate system should be in place. However, if this tried-and-true method works for you, embrace it and make the most out of it.
Another alternative is utilizing a basic spreadsheet, which proves to be beneficial when you are just embarking on your venture or if your business is still in its initial stages and you are aiming to minimize expenses. If your business becomes more intricate down the road, you can easily make the transition to accounting software in the future.
Using a spreadsheet allows you to:
- Establish a basic accounting system to monitor invoicing, implement simple calculations, and budgeting.
- Provide records to your accountant so they can export the data to their software and handle your accounts.
If you’re serious about starting a business, it’s essential to consider installing accounting software that seamlessly links to your bank account. This not only provides a foolproof method to document all your financial transactions, but also minimizes the risk of errors. With accounting software, you’ll have access to a range of features, including the ability to generate professional invoices, keep track of outstanding payments, accurately input data for tax purposes, and receive timely reminders for important deadlines.
By opting into cloud-based accounting software, you’ll gain increased benefits such as:
- Real-time visibility of your accounts. The software syncs to your bank account, providing a clear picture of your cash position within the platform.
- Enhanced security measures. In the event of a computer crash or laptop theft, your financial data will be securely stored in the cloud.
- The convenience of viewing your financial data anytime, anywhere. As long as you have an internet connection, you can manage your finances on the go.
Keeping Track of Your Cash
No matter which accounting system you choose, a good system will empower you to make informed decisions based on the current and future state of your business. It is important to identify trends that can aid in decision-making and ultimately drive the growth of your business, such as:
- Determining which products and services generate most of your revenue.
- Understanding which customers provide the bulk of your sales.
- Tracking where your money is going and measuring the highest costs.
- Identifying customers who have a history of late payments that require immediate attention for collections.
- Analyzing which products yield the highest profit margins.
By gaining a deep understanding of the cash trends within your business, you will be in a stronger position to enhance your profitability and discover opportunities for improvement.
Entrepreneurs and business owners in the beginning phases of their company can find it difficult to navigate all of the requirements necessary to operate a successful venture. Determining which accounting system to move forward with not only provides a clear overview of your cash position, but also maintains accurate records for the IRS. To kick-start this process, it is crucial to engage in a conversation with your accountant. They possess valuable insights and recommendations regarding the most suitable system, and it is essential for them to ensure its compatibility with their own practices.
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