Being self employed requires some basic accounting practices that are often overlooked.
Not following basic accounting practices can cause stress and frustration in the future.
Here are some tips to help to get you on the right track with your basic accounting practices:
Basic Accounting Practices: Keep it Separate
Keep your personal and business finances separate from each other. This is a mistake that occurs quite regularly with those that are self employed. A few suggestions are to have a separate checking account for your business, never purchase business supplies with personal supplies, pay yourself a salary, and do not transfer monies between personal and business for any reason whatsoever. Intermingling funds makes it difficult to know what your business is making or losing and makes reporting your financials impossible.
Basic Accounting Practices: Taxes
If you do your taxes yourself, educate yourself. Knowing what you can and cannot deduct will mean the difference between paying taxes and receiving a refund. Not only that, improper reporting could lead to the awful experience of an audit. It is recommended that you use a professional to prepare your taxes so that you can ensure that you are operating within the bounds of the law.
Basic Accounting Practices: Keep Track
Tracking all income and expenses will help you to know exactly what is going on with your business’ finances. This tracking can be as simple as setting up an Excel spreadsheet that has a description of the transaction and the amount that should be debited or credited. If waiting to get to your computer to input the information is something that you are not able to do, download an app on your phone that will help you track. It is also recommended that you keep your checkbook register up to date. Again, if you have difficulty keeping a physical register, there are apps that you can download.
Basic Accounting Practices: Documentation
Keep a record of anything that has to do with money coming in or going out. Not only that, document discounts, donations, giveaways, promotions, samples, or any other product/service reduction. Your financial documents are important for tax purposes, but also if you need to prepare a financial report. If you are wanting to bring in an investor, a partner, or need to go to the bank for a loan you will need to provide this financial documentation in order to move forward.
Basic accounting practices can help you to succeed financially in your business.
Keep things simple and do what you can. If there are financial tasks that you are unable or unwilling to do, hire others to do those tasks for you.