As a small business owner, it is important to keep accurate track of your money. Keeping accurate track of your money will help you know what to write off when tax season comes around. Keeping accurate track of your business's money will also help you make smart financial decisions about the direction in which to move your company.
Open A Business Banking & Credit Card Account
The first thing you need to make sure that you have set up is a dedicated business banking account and credit card. You should not mix personal and business financial needs in one banking account; you can pay yourself a salary out of your business account like a regular employee.
Having dedicated accounts for your business's money will make it easier for you to keep track of the money that your business brings in. It will also make it easier for you to know exactly how much money your business has when you don't mix your personal and business money together.
Track & Label Each & Every Expense
Second, you need to make sure that you are tracking all of your expenses. Use a program that will import all of your financial transactions from your bank account and credit card into one program. From there, add notes and classifications to each purchase, and label every purchase you make. For example, if you purchased paper for your printer, that would be "Office Supplies", or if you fixed the leak in the roof that would be "Building Repair", and attending a conference would fall under "Professional Development".
Labeling all of your expenses as you make them will help you better see what you are spending your money on, and labeling your expenses will help you keep better track of your cash.
Additionally, when tax time rolls around, it will be easier to identify what you spent money on and what you can write off on your taxes.
Label All of Your Deposits
Finally, make sure that you also label your deposits. For example, if you get money from a loan, label it as money from a loan, or if you get money from sales, label it as sales money. Identifying where your money is coming from will help you see where you are making cash. It can also help ensure that you don't pay more income taxes than necessary. A loan is not considered a source of income that you have to pay taxes on, but if you don't properly label the money you get from a loan, you could end up paying income taxes on it.
This year, make sure that you are keeping accurate track of all the money coming in and out of your small business. Keeping accurate track of the money flowing in and out of your small business will help you and your CPA with your taxes, and it will help you with effectively running your business.