Owners of small businesses, especially those that are still starting out, are mostly not aware of the basic practices necessary for accurate and efficient accounting. If your finances are all over the place, you will find yourself in trouble in the long run. Improper accounting practices will eventually result in tax audits and costly penalties. But, if you simply don’t have the time and confidence to do the accounting yourself, consider getting professional business accountants to do it for you.
So, here are three small business accounting practices you should follow.
1. Never Mix Your Personal and Business Bank Accounts
It will be difficult to untangle your personal account from your business one in the event that the authorities come in. You might also be fined if you can’t properly differentiate between your two accounts. Once you’ve decided to go into business, you should first open a separate account for the business and keep all transactions solely in that account.
2. Make Sure Your Bank Account is Reconciled Regularly
Each month, find time to reconcile your bank account properly. This means that your bank account must perfectly match the amount in your records or that in your accounting software if you use one. If not performed on a regular basis, you may end up paying unnecessary fees in the event that you overdraw your business bank account.
3. Never Pocket Earnings From Your Business
While there’s no doubt that it is your money, if your earnings are not recorded, the value of your business may suffer. For example, if the time comes that you require a loan or funding from investors, but because your business is not doing well on paper because of all that pocketed earnings, your business will look bad to lenders and investors.
Although there is definitely a learning curve at first, just stick to a routine that works for you and you’ll be able to handle everything with ease in the long run.