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.

Which small business credit card is best for your biz?

One of the most important choices you’ll make as a business owner is which small business credit card to use. In this article, we review four great options and make a recommendation about the best credit card for your business needs.

Finding an awesome virtual assistant, switching your email service provider, scanning your receipts, keeping up with social media… Let’s face it, as a small business owner, you have puh-lenty on your plate without having to scour the Internet trying to find the best small business credit card.

That’s why we’ve done the heavy lifting for you. First, we thought about what small business owners need most in a credit card, and came up with the following criteria:

  • Flexible spending: You have business expenses that need to be taken care of today, not three months from now. You need a card that offers you a generous credit line for emergencies and the regular costs of running your business.
  • Rewards: A good small business credit card should have a stellar rewards program that offers you points every time you spend.
  • Perks: In addition to rewards, we wanted to see additional perks such as the ability to secure credit cards for your employees, 0% introductory APR, no annual fees, etc.

Next, we sifted through hundreds of small business credit cards in order to weed out the duds and present you with the studs. After a lot of blood, sweat, and tears (okay, there wasn’t any blood), here are our top four candidates for the best small business credit cards out there:

AmEx SimplyCash

Our favorite thing about AmEx SimplyCash for small business? You get 3% cash back on the category of your choice from a list of select categories. You can choose the category that works best for your business to ensure you maximize your cash back. Categories you can choose from include U.S. restaurants, U.S. gas stations and shipping in the U.S.

Want even more cash back? Lucky for you, SimplyCash also gives you 5% cash back at U.S. office supplies stores and on wireless telephone services through U.S. service providers.

Another great perk is that you’re automatically entitled to 24/7 service and support through dedicated business consultants to help you solve the specific problems your business is facing. You’ll also receive other great benefits, like access to purchase protection, extended warranty and more.

You might be wondering, “How could it get any better?” Well, on top of all of that, SimplyCash has no annual fee and 0% APR for nine months. Pretty awesome, right?

Terms and restrictions apply.

AmEx Blue for Business

There are serious benefits to using an AmEx Blue for Business card. Stay with AmEx Blue for a year and receive an “anniversary bonus” in the form of extra rewards points, which will be the equivalent of 30% of qualified purchases.

AmEx Blue gives you the flexibility to distribute your points to your employees, clients, or any other area of your business that needs a little TLC.

AmEx Blue for Business also offers an introductory rate of 0% APR for 9 months (like SimplyCash). After this period, Blue for Business offers an APR of 11.24% – 19.24% variable.

Terms and restrictions apply.

Chase Ink Cash Business Card

This card gives you $200 cash back when you spend $3,000 in the first 3 months after opening the card. It’s not as high as AmEx SimplyCash, but Chase Ink Chase offers 0% introductory APR for 12 months, regardless of your credit score. After that, you’re looking at a 13.24% APR that will vary with the prime rate.

So what about rewards? This card will give you 5% cash back on the first $25,000 you spend on office supplies and office utilities like internet, cable and phone services.

You’ll also get 2% cash back on restaurant purchases and gas (up to $25,000). Once you’ve spent $25,000 in these areas, you’ll continue to receive 1% cash back, and all other purchases in other categories will also receive 1% cash back.

Because the introductory APR and ongoing interest rate are not based on credit worthiness, this could be a great business card choice for small business owners with less than perfect credit.

Terms and restrictions apply.

Capital One Spark Cash for Business

What if you don’t want to worry about what you’re spending based on categories like office supplies, gas and so on?

Then Capital One Spark Cash is the small business credit card for you. This is a great introductory card for new business owners. It doesn’t offer the big introductory cash back bonuses of the other cards ($100 vs. $250), but it doesn’t require you spend as much either ($1,000 in the first 3 months instead of $3,000).

The best feature of this card is its “rewards across the board” promise. Instead of earning 5% cash back on some purchases and 1% on others, you simply earn 2% cash back on all purchases, all the time. There are no spending limits, either – the 2% reward stays in place no matter how much you spend, and what you spend it on.

There are two drawbacks to this card when compared with the others: no 0% introductory rate (you’ll pay between 13.9% and 20.9% based on your credit), and there is an annual fee of $59 (although it’s waived during the first year).

Terms and restrictions apply.

Our Recommendation

Choosing the best card for your small business is a personal choice, and depends a lot on the type of small business you’re running, how much you spend each month, and what types of rewards program would benefit you most.

After reviewing the top four cards, we think AmEx SimplyCash is the best small business credit card for the majority of small business owners.

This card gives you the opportunity to earn the most cash back short-term and long-term. It also gives you 9 months with 0% APR, a low long-term interest rate after the first year, and great business-related perks through the OPEN savings network.

Do you use a credit card for small business? Which one? What do you like/dislike most about it?

*This content is not provided or commissioned by American Express. Any opinions, analyses, reviews or evaluations provided here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the Advertiser. This site may be compensated through the Advertiser’s affiliate programs.

How to Start Tax Season 2014 Off Right

Another year has come and gone, and that means another year’s worth of taxes are due soon. Here are some helpful tips and tricks to start tax season 2014 off right.

Can you believe it’s already 2014? If you’re anything like me, you’ve been writing 2…0…1…3 *shoot! scratches out* 4 all year.

Anyway, another year has come, and that means another year of taxes will be due before you know it. And remember, the sooner you get started, the sooner you’ll be finished and waiting on a refund check! Here are some tips to help you tackle tax season 2014 in record time.

1. Make a list

For many small business owners and freelancers, the hardest part of getting started with taxes is determining the dozens of moving parts that make up your taxes. Instead of keeping vague words like “expenses” and “income” circulating in your head, write down a specific list of things you need to complete the task at hand, like “Travel write-offs from that conference in San Francisco, receipts from Shoeboxed, get a copy of that receipt from Susan,” etc.

Using a list means you’re much less likely to lose something important– or worse, miss a deduction! The list will serve as your guide to navigating your taxes. If you get all of your papers (or even better, digital versions) organized beforehand, you’ll have everything at your fingertips whenever you need it.

2. Go digital

Hiring a bookkeeper and paying them to sort through your piles of paper can be quite expensive, but at the same time, you don’t want to be stuck without copies of your important documents in the case of an audit. What’s a savvy small business owner to do?

Go digital, of course! Electronic versions of your documents are much easier to manage than hard copy ones, so this tax season use a service like Shoeboxed to digitize your records, or perhaps invest in a ScanSnap and go DIY style.

If you’ve kept digital records throughout the year, you’re already one step ahead! For those of you who are just now moving towards a paperless lifestyle, now is as good a time as any to get rid of the clutter and step into the 21st century. The IRS has accepted digital documents since 1997, so it’s about time to go paperless and make your life easier (and your office less cluttered)!

3. Get those deductions

Around tax time, there’s one thing that small business owners are sure not to forget about: maximizing their tax deductions. No one wants to pay more than they have to, right? Make sure you factor in enough time to determine which deductions you qualify for so that you don’t miss an opportunity to save money.

If you’re a small business owner, check out our free white paper, “Five Proven Methods to Reduce Small Business Taxes.” It’s full of helpful tips and tricks to make sure you take advantage of all possible deductions!

4. Don’t miss the deadline

The tax deadline this year is Tuesday, April 15, 2014. If you aren’t going to make the deadline, don’t just skip it– check out this guide to filing a small business tax extension.

Are you ready to rock your taxes this year? Let us hear your best tax tips and tricks in the comments!