The old joke of showing up at the accountant’s office the day before taxes are due with a shoe box of receipts is still a reality for many small businesses. However, time with accountants is indeed money, in the form of billable hours and lost opportunities. A few practical bookkeeping tips can make the most of your financial consulting dollars.
Keep a Keen Eye on Your Cash Flow
Businesses survive on cash flow. If accounts receivable and accounts payable get too far off balance, even a thriving business can get caught in the crunch. Review your outstanding invoices on a regular schedule. Also, have a set time to send reminder letters. For example, if a bill is due on the 15th of the month, make it a habit of sending reminders on the 25th. The goal is to get paid before your own bills are due.
Make a list of your must-pay bills such as rent, utilities, payroll, and insurance. This is often called your “nut.” Posting these bills and their due date on a calendar remind you of when you need cash the most.
Keep Track of Mileage and Expenses
You can’t shove receipts into a drawer and deal with them “when you have time.” Every missed business expense is money on your tax bill. Make a habit of keeping a simple expense journal. Even if it’s a running list of the collected receipts by date, vendor, and business purpose. A few minutes a day or an hour a week will save you dollars when you sit down with your financial professional.
Each business vehicle needs a mileage log. If you are detail-oriented, record every trip. If not, a monthly log of beginning and ending mileage will suffice with notes on personal versus business use. Vehicles are a big expense for your business and capturing the mileage can result in big tax savings.
These logs can be notebooks, spreadsheets, or business software. The correct method is the one you will use and keep updated.
Plan For Taxes and Major Expenses
Seems obvious, but many businesses fail to work an allowance for taxes into pricing and cash flow. Your tax obligation is as much a part of the cost of sale of a cupcake as the ingredients and packaging. Work with your financial consultant to estimate how much you need to include in your service rates or price points to leave a margin for taxes.
Business owners need to also realize that there will be major expenses. A vehicle needs replacing or a hail storm damages the roof. Even with insurance, deductibles can eat into your cash flow. There are also the “To Do” items like remodeling your shop or introducing a new product. Planning now, by working an allowance into your cash flow analysis, could prevent costly interest charges later when you have to borrow to meet the expense.
Sounds like common sense, but in the rush of running your business, anything that isn’t making money may feel like it’s costing money. However, incorporating some basic discipline into your bookkeeping can reap real rewards:
- Keeping invoices up to date and cash coming in
- Not being late on your own bills
- Paying less in taxes by capturing your mileage and expenses
- Smaller bills from your accountant when your records are in order
- Avoiding IRS penalties for not paying taxes on time
- Being able to pay for major expenses rather than borrow
Whether you are an old hand or a new business, sitting down with a financial consultant and creating a bookkeeping plan that works for you is worth it. Consulting now can prevent mistakes later. After all, time is money. Contact us to set up an appointment.