Accounting, often known as the language of business, is something that young entrepreneurs like you has to keep track of when it comes to all the little financial details. Knowing the accounting basics and developing efficient bookkeeping habits has great advantages. As much as there are accounting software products available to you, it is important to be able to sit down and crunch out the numbers so that you can tweak your business budget as often as you see fit.
Like your business, there is an abundance of eCommerce businesses on growing marketplaces like Shopify that can easily skip out on the essential paperwork of operating a business. If you can’t figure out how to keep up with your business cash flow, this is the time you need to consider how to smooth out your returns of investment and stay away from end-of-the-year tax frustrations.
Here are some basic accounting tips for you young and budding entrepreneurs:
Set money aside for the taxes
No one can truly predict how much their business is going to rake in by the end of the tax year. In case you make the big bucks, remember to always keep money on the side for a rainy day. Do so consistently so that you’ll be in the habit of doing so every month. This will prepare you to make the appropriate payments when the tax is actually due. In this way, you’ll never have to be pressed between paying your taxes and paying your staff to keep the business running. The same goes for setting money aside for potential major expenses that your new business needs.
Don’t lose sight of expenses
Moving on from all the talk about taxes—more taxes! Keeping a good record of your expenses will help you realize the tax cuts you can get when the time comes. As a young entrepreneur, you should not only be motivated to make money, but also to save it. Keep your business credit card separate from your personal uses and you’ll have a good accounting system for expenses that you’re acquiring on behalf of your business. The credit card statements you receive will give a good overview of business activities even if you end up losing all your receipts.
Be on top of your invoices
While keeping cash freed up and paying your bills closer to deadline is not an issue, paying bills late or leaving them unpaid is going to hurt your cash flow in the long run. If there isn’t anyone to assign the bookkeeping tasks, do it yourself. The second you forget about an invoice and leave bills unpaid, you’re not only accumulating late charges but also damaging your credit history and potential relations with other businesses that you would like to partner with down the road. As much as reputation is important for individuals, it is most so for businesses.
Record your deposits correctly
No, you’re probably not going to go back to it again until you have to do the tax next year so don’t kid yourself when it comes to managing your financial activities. You don’t have to necessarily invest in any accounting software to do this correctly. Typically using an Excel Workbook or Quickbooks is going to be sufficient enough to do the job. What’s the purpose of recording correctly? If you aren’t recording your deposits correctly, a lot of the time businesses tend to mistaken this as income. What are the consequences? First of all, you’ll be reporting more income than you actually had when it comes to tax season. Second of all, your business decisions won’t be based off of the correct numbers because you aren’t doing as well as you believe.
If you’re having a hard time getting started with bookkeeping, talk to a local CPA who can help you navigate through the particulars of your state and county tax laws. There may be certain records you need to keep or paperwork you need to file.
Good business can be as simple as basic math. Keep your income up-to-date and deposits of other types separate. Be sure to keep your tax record for at least 7 years and up to a decade before you trash the unnecessary files. A lot of the times businesses will find their file cabinets overstuffed with paperwork that doesn’t seem to be of any use. But trust that in a couple years when you need it the most and don’t have it—that’s when having it will really count. For now, perhaps buy a new filing cabinet…it’ll save you the big bucks later.