Running a successful small business is no easy task. According to the Small Business Administration (SBA), there are nearly 28 million small businesses with fewer than 499 employees operating in the United States. Unfortunately, more than half of these small businesses will close within their first five years. Whether you currently own a small business or are thinking of launching one, you should follow the accounting tips listed below to increase your chances of success.
Separate Personal and Business Expenses
One of the most common accounting mistakes made by small business owners is mixing together personal and business expenses. While paying for a business-related expense using your personal credit card may seem harmless enough, it can make it difficult to prepare and file your taxes. To simply your taxes, it’s recommended that you separate your personal and businesses expenses, using only business accounts to pay for business-related expenses.
Leave a Paper Trail
In addition to separating your personal and business expenses, you should also leave a paper trail. In other words, avoid using cash to pay for business expenses, and instead use a credit card, debit card or check. Granted, it’s not illegal to pay for business expenses using cash. The problem with cash is that it doesn’t offer an easily accessible record. You may obtain a receipt, but you won’t be able to download or access records of your cash transactions. On the other hand, using a credit card, debit card or check to make purchases creates a digital record, which you can later access if needed.
Some business owners assume that accounting software isn’t necessary. If they only perform a few transactions per week, for instance, a small business owner may use Microsoft Excel to keep track of their income and expenses. In doing so, however, they set up themselves up for failure. Regardless of how many transactions your business performs, using the right accounting software will certainly help. Quickbooks is a versatile, easy-to-use accounting solution that allows you to keep track of inventory, expenses, income and more. Most small business owners and professional accountants will agree that it’s well worth the investment.
Pursue Accounts Receivables
Assuming your small business sells a service — and you allow customers to pay after the service has been completed — you should follow up on accounts receivables to collect money due. Overlooking accounts receivables could result in a substantial loss of income.
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