Adopting good bookkeeping habits will save you time, stress and costly errors down the line.
1. Track expenses—You may miss tax write-offs if you don’t stay on top of this. What to do: A credit card used solely for business is a good place to start. Most card statements categorize expenses so you can see which expense relates to which business activity. If you always use your business credit card for business expenses, avoiding the use of cash or other payment methods, your credit card statement will effectively become a basic accounting system. Another good habit is to routinely document business trips, lunches, coffee dates and other business related activities in your calendar or day planner. Additionally, when tracking business mileage—add a link to google maps or document an address for each trip in your calendar or day planner. These habits can go a long way toward substantiating those items for your tax records in the event of an audit.
2. Record deposits correctly—This will help ensure you won’t pay taxes on money that isn’t income. What to do: Adopt a system for keeping your financial activities straight and use it consistently—whether it’s a notebook, an Excel spreadsheet or software such as Quickbooks. Business owners typically make a variety of deposits into their bank account through the year—including loans, revenue from sales and cash infusions from their personal savings. The trouble is, at the end of the year, if these deposits aren’t documented properly, you or your bookkeeper might record these deposits as income, causing you to pay taxes on money that wasn’t actually income.
3. Keep a close eye on your invoices—Late and unpaid bills hurt your cash flow. What to do: Make it a priority to track your billing—if you can, assign someone in your organizations to do this. Then put a process in place for issuing a second invoice, making a phone call and perhaps levying penalties such as extra fees at certain deadlines. You will want to have a plan for what happens if invoices become 30, 60 or 90 days late. Every outstanding invoice is an interest-free loan and hurts your cash flow.