Being a business owner investing time and money into a business, it is crucial to have a solid understanding of your financial situation.
What are some key points in tracking your finances?
Keep Receipts: Maintain detailed records of all business expenses by keeping receipts. This will help you verify transactions and claim appropriate tax deductions, avoiding potential issues during an IRS audit.
Separate Personal and Business Finances: Keep your personal and business finances completely separate. Using personal accounts for business transactions or vice versa can lead to confusion, inaccuracies, and problems with financial reporting and tax filings.
Don’t Procrastinate: It is vital that you maintain comprehensive record-keeping. The longer you procrastinate, the more valuable time it will take from you trying to backtrack and trace transactions. Ensure that you record all financial transactions promptly and accurately or it can result in discrepancies and make it challenging to reconcile accounts correctly.
Reconcile Regularly: Regularly reconcile your bank, credit card, and loan statements to identify and correct any errors in recording transactions. Neglecting reconciliations can lead to inaccurate financial statements and tax filings.
Classify Income and Expenses Properly and Effectively: Correctly categorize all income and expenses effectively and strategically. Doing this will allow you to transform your raw data into reports that deliver essential financial insights at a glance that will help you in your decision-making and business planning.
Track Invoices and Payments: Keep a close eye on invoices issued and payments received to maintain healthy cash flow and follow up on outstanding payments.
Hire Experienced Financial Professionals: Consider hiring an experienced bookkeeper and a CPA for your financial record-keeping, reporting, and tax filings. Trying to do it yourself or hiring someone inexperienced can lead to costly mistakes.
By avoiding these common mistakes and maintaining accurate and organized financial records, you can avoid inaccurate tax filings, be prepared if you ever have an IRS audit, ensure better financial management, and have a clear understanding of your business's financial health.