Bookkeeping For Entrepreneurs Best Practices

As an entrepreneur, to be honest, is good bookkeeping your priority when running your business? While it is not the most exciting work, organizing records and tracking transactions are essential parts of every business, however small it is. 

What should entrepreneurs know about bookkeeping? Are there simple tips on proper bookkeeping that business owners can follow? 

This article will help you to answer these questions.

Bookkeeping for entrepreneurs: A basic guide

1. Choose a business model

Before having your first books, as an entrepreneur, you should register your business and select a suitable business model that fits your needs. Depending on what you choose, the requirements for filing tax may be different and you don’t want to mess around by being ignorant. Many entrepreneurs start off as the only owners of their companies. Apart from the easy registration procedure, sole proprietorship also allows them to pay business taxes as part of their personal income tax. For those who would like a clear boundary between them and their business to avoid the risk of company debts, a limited liability company or a corporation can provide better legal protection. 

Although in these cases, separate tax filing tends to be a complicated process which makes bookkeeping more demanding with multiple financial documents to prepare, the tax benefits that they offer, including lower tax rates, are among the reasons for their popularity with entrepreneurs.

2. Adopt a suitable accounting and bookkeeping method

For aspiring entrepreneurs who are new to managing finances, taking on accounting and bookkeeping is quite a problematic quest, even to the bravest of all. They need a reliable map that guides them through this adventure. In other words, we can say that finding out an exemplary method for each task and being consistent with it is highly important. When it comes to accounting, there are two options to choose from:

  • Cash-basis accounting: To put it simply, under the cash accounting method, you record what you receive and pay right at the moment the money exchange occurs. It is quite straightforward, so even beginners can try this method to keep track of their business revenue and expenses.
  • Accrual-basis accounting: The timing of recognizing revenue and expenses in the accrual accounting method is not as immediate as in cash basis accounting. It documents revenue and expenses when transactions occur even if cash hasn’t been paid out yet. Since accounting for items such as unearned revenue and prepaid expenses is involved, many entrepreneurs find the accrual method helpful in providing an accurate portrait of a company’s profitability in the long term.

After deciding on an accounting system to stick to, you will also need to ensure you are doing proper bookkeeping. Tracking all business transactions by keeping every receipt and invoice in order is not easy work. But without it, you won’t be able to see the income and expenses of your business, let alone make informed decisions on financial matters. Most solo entrepreneurs may have the first-hand experience of becoming their own bookkeepers, and that’s certainly beneficial in several ways when the business owners acquire some bookkeeping knowledge. However, as their business grows and the bookkeeping workload increases, at some point, they won’t be able to manage it by themselves. 

The best possible option would be to have a full-time bookkeeper. Hiring a part-timer may cut down some fees, but nothing compares to having someone dedicated to the job and who knows your business. If you wish to integrate technology into accounting, it’s a good time to opt for a cloud-based solution. With a variety of accounting services available nowadays that help you to manage bookkeeping online by, for example, linking to your business bank account, you can save so much time on tracking transactions.

3. Track your expenses

One of the basics of bookkeeping is to track all business expenses. It involves developing a filing system for your receipts and financial documents, ranging from tax returns, bank and credit card statements, office bills (utilities, internet, phones, supplies, etc.) to receipts from travel, travel, and business meals. Keeping all that paperwork in place, either by storing its physical or digital copies takes a lot of effort as it is piling up every day. It will be too late to start preparing these records only when the tax season comes near. So ideally, you should organize everything regularly.

4. Monitor payment

As there are many payment options to meet the demand of both payers and payees, entrepreneurs need to develop flexible tracking methods to maintain good bookkeeping. If you are just used to paying by checks and cash and accepting paper receipts, you may need to consider other payment ideas to broaden your clients’ choices.

Credit card and debit card payments are becoming the norm, and we are also increasingly familiar with online payment. Managing all transactions manually will no longer suffice in this digital era, so businesses everywhere are going paperless and automating their bookkeeping process.

5. Know your tax obligations

As mentioned in the first section, tax requirements for each type of business vary based on how you register it. In fact, tax obligations also depend on other factors, such as different state regulations and characteristics of specific industries. Here are some typical taxes that most entrepreneurs will need to cover:

  • Self-employment tax:  If you start out as your own boss, this tax is obligatory because you will need it to pay your medicare and social security fees.
  • Employment tax: Once you become an employer, you are responsible for covering your employees’ Medicare and social security expenses through your contribution to employment tax.
  • Income tax: You can file your business tax as part of your personal income taxes if your company is a sole proprietorship. For complex entities like a corporation, business income tax is filed separately. A limited liability company provides an in-between option where you can choose to pay taxes either as your own or as a business cost.
  • Sales tax:  To collect the accurate amount of sales tax and submit it to the government, you need to refer to how your state of location regulates it. As a rule, sales tax is charged to the end-user of a good or service, so if your business is only part of the manufacturing chain, make sure to obtain a resale certificate to avoid paying the sales tax.

Why bookkeeping for entrepreneurs is important to know? 

  1. To manage budgets

Bookkeeping lets you know where and how much money is coming into or going out of your business. By keeping records of revenue and expenses, entrepreneurs can understand the financial situation of their business and look for ways to improve its overall performance. Specifically, business owners can evaluate how efficiently budgets are allocated at that moment based on past records, invest more in activities that are working well and make necessary changes to those that are not as profitable. Managing budgets and financial planning becomes easier when you have a functional accounting and bookkeeping system in place.

2. To prepare better financial reports

No one can underestimate the importance of financial statements in the business field. Accurate reports can tell your company’s financial health and play a crucial role in the decision-making process that dramatically impacts its growth. If there is a key to creating good reports, it must be the accuracy and reliability of the input data. This is when bookkeeping comes into play as its records contain precious raw data, which is then consolidated and analyzed in financial reports. Entrepreneurs will have to work with the following documents frequently, and even when they are not always supposed to write such statements, they must know how these are created and what bookkeeping records they use.

  • Income statement: The income statement reports the revenue and expenses of a business over a period of time, based on which you can see whether the company is making a profit or how much loss it is generating.
  • Balance sheet: The balance sheet shows details about a business’s assets, liabilities, and equity at a specific time. You will need this report to know whether what your company owns and owes are on balance.
  • Cash flow statement:  A cash flow statement gives you information about the cash and cash equivalents coming into and going out of your business. The cash flow may fluctuate daily, so it requires constant updates on everyday transactions.

3. To get ready for tax season

Keeping all the records organized will make filing your taxes so much easier. With every earning and expense accounted for, the preparations for tax season will go smoothly, and entrepreneurs can rest assured that they are compliant and ready for the visit of the IRS anytime.

Bookkeeping for entrepreneurs: Amazing tips!

We’ve combined some of the most amazing tips on bookkeeping for you right here! 

  1. Create a separate business account

To do proper bookkeeping, you may need to consider opening a business bank account different from your own, which helps you legally separate your business and personal finances. Even if your company is incorporated and you can pay business expenses with your personal account, this adds more complications to bookkeeping and claiming tax deductions. When the line between personal and business data is blurred, it won’t be easy to track the progress of your business and plan for the future. It is expert advice that you should also apply for a business credit card for the same reasons.

  1. Keep all receipts

Not only receipts but also invoices and proofs of all payments are needed to back up the validity of your tax deduction, which helps you reduce the amount of taxable business income. Providing such evidence is not a problem for credit card purchases because you can get receipts and bank statements every month as supporting documents. With cash expenses, the conventional way would be manually recording them in a notebook or spreadsheet while keeping the paper receipts for rechecks. Or you may wish to use an accounting app, snap photos of your bills, and store them safely in the cloud-like what Shoeboxed mobile app offers. Shoeboxed also helps you keep physical copies of crucial documents at your request.

  1. Digitize your financial data

The most apparent advantage of going paperless is probably saving space in your office. A digital bookkeeping system allows entrepreneurs to work more effectively with less paper to store and easily retrievable data. Since a growing number of businesses are now interested in this trend, it may be too late if you persist in the old way and resist changes. However, there are some vital paper documents that you will need to retain for legal purposes. Hence, it is best to keep both physical and digital copies of such records as contracts and licenses.

  1. Pick the right tools

Not many entrepreneurs are trained as accountants, so there is no need to use an accounting system that requires expert-level knowledge to begin. Do some research and choose a program to fit your business needs and bookkeeping practices. Similarly, you should pick the software whose features are compatible with your current system. For example, Shoeboxed’s receipt scanning and expense tracking services are designed to work well with major accounting programs like QuickBooks and Xero. The combination of these wonderful tools will help you finish the daunting work of data entry, categorization, and organization in no time!

  1. Take advantage of professional help

Although entrepreneurs can make do with bookkeeping and accounting to some extent, most businesses will need someone committed to the job if they are to thrive. Find a professional accountant who you can trust and let them be your best business partners. Learn from their specialized knowledge and experience to facilitate your plans. It is not always about financial reports and tax prep; a good accountant can offer insight into the business that helps to guide its development and success.

Conclusion

People say that a successful business should make a lot of money, but that is incomplete. A business can’t grow unless it manages the money earned well. More focus must be placed on adopting good bookkeeping practices. This is not a duty of only bookkeepers and accountants – entrepreneurs should be part of it too, for the sake of their company.

Digitized Receipt Management Is The Secret To Successful Start-up And Entrepreneur Business: Here’s Why And How

Are you start-up entrepreneurs who are struggling to manage your business expenses? Or are you business owners who have head-scratching problems keeping track of your receipts? 

Having receipts unorganized may slow down your business. Therefore let Shoeboxed become your reliable partner in tracking your expenses. You just need to focus on your business, we will clear the receipts for you.

In this article, we would like to share with you the benefits of receipt management and how it helps start-up entrepreneurs and business owners to improve their business performance.

Table of contents

  1. What is receipt management?
  2. Digitize your receipt management task
  3. Shoeboxed – who we are and what we offer
  4. Conclusion

A receipt is a piece of paper that contains the most important information of the transaction of 2 parties.

1. What is receipt management?

It means what it sounds. Yes, you are not reading it wrong! Receipt management just simply means managing the receipts through the practice of organizing, filling, and profiting by keeping track of the receipts accurately.

2. Digitize your receipt management task

For an old-style receipt management system, you need a pen, a set of paper, and a calculator to record and totalize your expenses. Nowadays, with the development of technology, you can store those receipts in your computer just by a scan, and even get insight into your expenses just by a few clicks.

It is easier when tracking your business performance

Normally, small business owners deal with two types of receipts on a daily basis. One is the record of what they have spent (for eg. payment of utilities such as electricity, water, etc.) and the other is the record of purchases their customers have made. After scanning your receipts and having the raw data, you can customize your monthly expense by sorting chronically, by the vendor, or even by type of product and so on. So by digitalizing the receipts, you can monitor the performance and profit for each month, what needs focusing, and what needs to be omitted.

It is a lot simpler when applying for a tax deduction process

Having your expenses digitized can also reduce your time preparing for the tax deduction process. For example, if one type of expense is considered tax reducible, other relevant expenses in the same category might also be tax-deductible. Even though there is not 100% that your tax payment can successfully get deducted, you still get a higher chance just by organizing your receipts.

It is faster when preparing for the auditing process

Receipts are evidence of your business performance when it comes to the auditing process. As mentioned above, when scanning your expense receipts, you also store a soft copy of them on your computer. Therefore, to prepare for the auditing process, you can easily retrieve the pictures of those receipts with just 1 click.

3. Shoeboxed – who we are and what we offer

We are Shoeboxed. We offer a service that helps not only individuals but also organizations with their receipt management tasks. 

We help you turn your receipts into digital data so you can keep track of them easily. Our team members will double-check if the information is correct or not so please rest assured that the digital data are verified. With the data in your hand, you can freely customize your data based on your preferences. You can also create the expense reports on your own for tax preparation or reimbursement as well as the auditing process. 

Also, with some more techniques, you can have a broader and deeper view of your business performance as well. 

How our service works

1. You can send us your receipts for free with our postage-paid Magic Envelop and we will scan them for you. You can also scan the receipts by yourself with our mobile applications (compatible with both Android and iOS).

2. We extract all the key data of your receipt so you can easily keep track of them. To view the full scanned image of your receipt, you just need to click into the expense.

3. For customizing the report, you can use our categorizations, or create your own which fit your needs. You can export and download them anytime, even the scanned ones.

We offer different plans for different purposes so please visit our website or contact us for more information about which plan is best for you. And don’t worry, we also offer a 1-month trial so you can test first if we are what you are looking for. 

4. Conclusion

With those benefits mentioned above, the importance and the necessity of receipt management are undeniable. Income statement, Business performance tracking, Tax deduction procedure, Auditing process become easier and faster just by a few simple steps. Last but not least, no one wants to collaborate with an unorganized partner. Therefore, having your accounting desk clear will help not only boost up your business performance but also strengthen your image in the market.

A 5-Step Guide to Manageable Tax Prep for Entrepreneurs

Not only are taxes time consuming, confusing, and a nuisance, but they can also be a drain on your wallet if you don’t prepare well. This is especially true for entrepreneurs who, aside from having to deal with the complicated tax filing process of running a business, also have to actually run the business.

If there’s one thing all entrepreneurs can agree on, it’s that they dread tax season.

In fact, a recent survey by the National Association of Small Business (NSBA) reveals that 38 percent of small businesses reported they spent more than 80 hours a year dealing with federal taxes. That’s two whole workweeks! That same survey found that almost 50% of small businesses spend $5,000 or more annually on the accounting process alone—before paying their taxes!

Not only are taxes time consuming, confusing, and a nuisance, but they can also be a drain on your wallet if you don’t prepare well. This is especially true for entrepreneurs who, aside from having to deal with the complicated tax filing process of running a business, also have to actually run the business.
Whether you choose to do taxes on your own or hire an accountant this year, here’s a quick guide on how to knock tax season out of the park:

1. Familiarize Yourself With the Lingo

One thing we shouldn’t complain to the IRS about is the amount of tax breaks they offer. Tax breaks give small business owners and freelancers a great opportunity to win back some of that money they’ve been spending on their business, and it’s a unique way to encourage entrepreneurship.

However, there is a small caveat to this: it’s hard to keep track of what’s what. There are important differences between deductibles, refundable credits, and non-refundable credits. Each can help you in distinctive ways, so it’s useful to know which expenses qualify for which tax break as you track your finances throughout the year. Investopedia and the IRS website are helpful tools that can break down tax vocabulary into simple terms.
 

Deductibles

Benefits: Lowers taxable income and total tax liability. Can help with items that represent reductions in ability to pay tax (i.e. casualty losses).
What Does That Mean: Because deductions cannot reduce taxable income below zero, their value is limited to the filer’s tax liability before applying the deduction. Value depends on the taxpayer’s marginal tax rate, which rises with income.
Examples: Health care expenses, mortgages, car loans, investment-related expenses
 

Refundable Credits

Benefits: Decreases a person’s tax liability. Same value for all taxpayers with tax liability at least equal to the credit.
What Does That Mean: Treated as payments of tax you made during the tax year. When total of credits is great than total tax owed, you get a refund for the difference. Credits are more appropriate for subsidies provided through the tax system.
Example: Earned Income Credit, Additional Child credit, Small Business Health care credit.
 

Non-Refundable Credits

Benefit: Lower tax limit as low as it can go. Represents the majority of credits.
What Does That Mean: Credit cannot be used to increase tax refund or to create a tax refund when you wouldn’t already have one. Savings cannot exceed amount of tax you owe.Example: If you only owe $200 in taxes, and the only credit you’re eligible is for $500, the $300 difference is non-refundable.
Example: Child and Dependent Care Expenses credit, Saver’s tax credit, Adoption tax credit, Foreign tax credit.
 

2. Don’t procrastinate

Unless you want to have a very stressful week, don’t wait until right before April 18 (note – usually tax day is April 15) to prep and file your taxes! Last year, the IRS reported that 28% of Americans waited until the last few weeks before tax day to file their return. Sure, you can file for an extension if you can’t make it before the IRS deadline, but there are drawbacks to this, like late fees. And, just because you file late doesn’t mean you get extra time to pay taxes if you owe the government money.

Plus, when you take your time to carefully approach a tax filing, it won’t seem as stressful or time consuming. You’re more likely to make an error or miss out on a deduction if you rush the process.
 

3. Stay organized

By far, the easiest way to minimize the hassle of tax season is by staying organized and keeping updated records of receipts, payments, and expenses. The IRS demands documented proof for claims, so having everything stored and accessible can reduce a substantial amount of time and pressure.

Organization also helps maximize deductions and reimbursements without the hassle of scrambling to find misplaced financial records. It also makes it possible to file taxes at the earliest possible time because paperwork is readily available at your fingertips.

Shoeboxed’s mission is to streamline this process so that you can focus on more important things during tax season, like running your business or taking care of your family. We process and organize your receipts so that vendor, total amount, date and payment type are extracted and available in a searchable online account—without you ever having to lift a finger. You can also tag receipts as reimbursable or deductible so when you file taxes, your documents are already catalogued appropriately.
 

4. Stay informed

There’s a lot to swallow these days when it comes to tax codes, especially since the IRS makes changes on a yearly (and sometimes, even seasonal) basis. It doesn’t hurt to take some time researching professional blogs and news sites that can keep you informed on the latest tax changes. The extra initiative will take a few hours of time on your end, yes, but not nearly as much time it would take to prep taxes with little to no knowledge on how to maximize returns. This is especially helpful for entrepreneurs who do not have their own accountant.

Without a guiding hand, it’s easy to make misinformed decisions with tricky nuances (like filing status, for example). Some helpful sites that give excellent pro advice are Don’t Mess With Taxes, TaxGirl and AICPA.
 

5. When in doubt, ask a pro 

With an endless supply of information, the Internet of things can answer any question you may have related to taxes. Sometimes though, having 10+ pages pulled up with an overwhelming amount of information can make material difficult to digest. If your questions are very intricate and situational, it may be best to approach a tax expert or CPA. Examples of these questions may include:

  • Do I have a limit for my charitable contributions?
  • Should I itemize deductions? How in-depth?
  • When should I contribute to an IRA?
  • Should I file jointly, as single, or as head of household?
  • I have all these miscellaneous business expenses and reports, but which ones should I keep for reimbursements and deductions?

Sometimes it’s easy to do a quick Google search for these common tax questions. Other times, the answer depends on your business situation, among other variables.

If you have an accountant, keep in touch with them throughout the year. There’s no reason you should wait until tax season every year to speak to them. CPA’s are experts in their field and they’re a great resource that can put you up to date with all the latest changes in tax policy. Stay organized, plan ahead, and you can get the most out of your tax season.