Bookkeeping Tips for Business Owners

Plan for major expenses. You will probably overlook business opportunities or have to mix up for a loan when the expenses become inescapable.

A year in advance or, preferably, three to five years ahead, put events like a major computer upgrade on the calendar. Admit the cyclic ups and downs, something many entrepreneurs are unwilling to do.

“This helps you to be honest about the fact that it’s coming and plan for it,” says James LeMay, a director with the accounting firm Daigle & Associates in Boston.

Track expenses. You or else could fail to spot some tax write-offs and might lose out on others.

A credit card that you use solely for business can be a basic accounting system, says Raffaele Mari, an accountant in Newport Beach, Calif., who teaches a financial course for entrepreneurs at Pepperdine University.

For you to be able to see which outlays relate to which business activities, most card statements categorize expenses. If you always use your business credit card for business expenses you’re less likely to pay cash.

Additionally, Mari says, routinely jot down business trips, lunches, coffee dates and other events with cash outlays in your electronic or paper day planner. This habit can go a long way toward substantiating those items for your tax records in the event of an audit.

“Often on tax returns, those numbers are too round. No one drives exactly 5,000 miles for business in a year, so the IRS knows this is an estimate,” Mari says. “In an audit, if you can’t substantiate those numbers, the whole category [of write-offs] can get thrown out.”

That data, along with a day planner recording the trip, are usually enough record keeping to satisfy the IRS, Mari says.

Record deposits correctly. You may be less likely to pay taxes on money that isn’t income.

Implement a system for keeping your financial activities straight. Business owners normally make a diversity of deposits into their bank account through the year, counting loans, revenue from sales and cash infusions from their personal savings. The trouble, Mari says, is that at the end of the year, you or your bookkeeper might erroneously record some deposits as income, and consequently pay taxes on more money than you’ve actually made.

Set aside money for paying taxes. The IRS can charge penalties and interest for not filing quarterly tax returns on time.

Thoroughly put part of money aside throughout the year for taxes. Next, note tax deadlines on your calendar, together with prep time if you need it, to be certain you in fact make payments when they’re due.

Payroll taxes that go unpaid can be especially problematic, Mari says. He often sees cash-crunched entrepreneurs get through a down cycle by dipping into employee withholdings that they should have sent to the IRS.

Keep a close eye on your invoices. Late and unpaid bills harm your cash flow.

Hand over someone in your organizations to monitor your billing. After this, put a process in place for issuing a second invoice, making a phone call and perhaps charging penalties like extra fees at definite deadlines.

“You want to have a plan for what happens if they’re 30, 60 or 90 days late,” Mari says.

Some entrepreneurs believe that once they’ve sent out an invoice, they’ve taken care of billing. Not so, Mari says. “Every late payment is an interest-free loan and hurts your cash flow.”

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