MARCH 17, 2015
After more than 25 years helping small business start and run their bookkeeping, I've learned there are some common errors people do over and over when operating their businesses. I'm sending out 20 tips I've collected through the years to address the most common problems I run into with my clients. A few weeks ago, I gave you the first five, I hope you find these next five helpful as well - I'd love your feedback!
Michelle Carley, Owner, Big E-Z Bookkeeping
Bookkeeping Tip #6: Choose the Right Accounting Method - Cash or Accrual
Many small businesses opt for the cash system because it is much simpler. In fact, the IRS requires that you use the accrual method only if you have $5 million in sales or carry a large inventory. However, before setting up your system, make sure you understand the difference between the two.
Bookkeeping Tip #7: Maintain Daily Records
Think about it, if you don't have time to do a little bookkeeping each day, when will you find time to record a month's or a year's worth of records? Different people use different record-keeping systems; what matters most is that you have a system and use it daily. Ten minutes a day can save you hours down the road.
Bookkeeping Tip #8: Make Immediate Deposits
DEPOSIT THAT CASH RIGHT AWAY--Get into the habit of depositing all cash immediately at the bank or credit union once it is received. This ensures that all income will be properly recorded.
Bookkeeping Tip #9: You Are Taxed on Profits Not Revenue
Many business owners think they are taxed on all the money they take out of their business. In fact, if you are a sole proprietor (rather than a corporation) you are taxed on the profits (income-expenses) of the business---not the revenue. Your quarterly estimated income tax payments should be based on the profits of the business.
Bookkeeping Tip #10: Set Aside Money for Tax Payments
Every time you’re paid, set aside in a separate bank account, 25 percent of that payment. When it comes time to pay the IRS every quarter, you’ll have that money ready to use. Treating that money like you never have it in the first place will give you a more realistic cash flow and help you sleep at night.