Startups bootstrap their way to success. Funding is limited, long hours are imminent and founders often work more than they see their family. It’s also not uncommon for a founder to handle tasks that he or she isn’t qualified to do – accounting, marketing, sales and so on.
Accounting is a task that can land a startup in legal and financial trouble.
If a business doesn’t have the cash flow to hire a professional accountant, there are some things that they can do to keep their books in better order, and provide detailed proof of profits and expenses if an audit occurs.
1. Separate Personal and Business Expenses
It’s easy to pull out a business credit card to pay for personal groceries or pay for an invoice with a personal debit card. Owners often use this practice when they’re waiting for money to come in, or sometimes, these owners are just too careless to realize that they must separate business and personal expenses.
The more complex your business becomes and the more transactions that occur, the more deductible expenses there will be. Deductible expenses help you save money on your taxes, but when these expenses occur across different accounts, it becomes very difficult to track.
Start your business with its own:
- Checking account
- Credit card
2. Properly Keep Track of Expenses
It’s easy to get lost in your expenses. No one really wants to spend their cash flow, but it’s a part of business and needs to be properly accounted for in your books. You’ll want to track your expenses the right way by:
Using credit cards to purchase items keeps the amount of receipts to a minimum, and you can use the statements as a proof of purchase, too. You’ll also be able to leverage the benefits of a card to save money.
Rewards cards are a smart choice for businesses and help alleviate some of your cash flow problems by saving your business money.
When paying in cash, you’ll want to make digital copies of your receipts and file them away appropriately.
A little organization of your expenses can help you make quick work of deductions.
Small businesses can also use accounting software to help properly maintain expense records. A few of the top accounting software options are:
The faster your business adopts accounting software, the better. Your accountant will appreciate a nice, neat record of your business operations, too.
3. Track Labor Costs
Labor costs are often a business’s highest expense. You need to pay employees and keep your operation running. When you’re only paying yourself, this task is much easier than when you’re paying:
- Employee salaries
- Health benefits
Costs will add up quickly, but you also need to manage these costs through proper record keeping. You should know that John, your senior employee, is working an average of 10 hours overtime per month.
You should know how much the average employee will cost your business in terms of overtime, salary and benefits over their tenure with your company.
The key most important thing is to use labor costs to make sure that you’re:
- Not over-paying
- Not under-paying
It’s just as bad to over-pay as it is to under-pay an employee. Under-paying will cause a loss of loyalty, which can result in faster employee turnover and costs.
4. Hire a Professional When Viable
Startups need to be frugal, and if the cash flow doesn’t allow you to hire an accountant, you need to do all of the bookkeeping and accounting on your own. Accounting takes years of schooling and experience to properly be done.
And you’ll need to keep up on all of the most recent changes to tax laws and deductions to save your business as much money as possible come tax season.
Startups need to start their operations worried about tax advantages. Million-dollar companies have the revenue and budget to miscalculate deductions, but when your cash flow relies on tax advantages to keep the lights on, you need to hire a professional that knows:
- Tax codes
- Tax advantages
Professional bookkeepers and accountants will make sure that your business’s records are up-to-date and have the information needed to save you money.
Accountants will find ways for your business to save money, identify over expenditures and ensure that the books are done right.
Business owners will benefit from being able to focus more on their business’s sales and profits, and less on the tedious task of adding debits and credits to a ledger.
If your startup implements these four tips today, your business will be stronger. You’ll also save money on your taxes, understand where money is coming in and going out and ensure you’re claiming every tax advantage available to you.