Entrepreneurs, such as myself keep a lot of the financial details of their business in their heads. Doing so has its advantages: No new software to learn, no danger of a system crash that loses all your data, and you can tweak your budget as often as you need without sitting down at a desk.
But when you don’t have a system and some processes in place, unpleasant surprises can pop up, goals can be easily missed and important paperwork forgotten, which I know all to well.
Getting a better handle on your money can help you to make and keep long-term goals, smooth out the seasonal ups and downs of your cash flow and “maybe” improve your profits. It can also help you to stay out of trouble with the Internal Revenue Service, which is no fun place to be in, trust me…been there and done that!
Here are a few tips for entrepreneurs.
1. Track expenses.Why it’s helpful: You otherwise might some miss tax write-offs and may lose out on others.
What to do: A credit card that you use solely for business can be a basic accounting system.
Most card statements categorize expenses, so you can see which outlays relate to which business activities. If you always use your business credit card for business expenses, you’re less likely to pay cash at, say, Staples and lose the receipts, forfeiting tax-time write-offs. Pens and printer paper can add up.
2. Record deposits correctly.Why it’s helpful: You may be less likely to pay taxes on money that isn’t income.
What to do: Adopt a system for keeping your financial activities straight, whether it’s a notebook you use consistently, an Excel spreadsheet or software such as Quickbooks. Business owners typically make a variety of deposits into their bank account through the year, including loans, revenue from sales and cash infusions from their personal savings. The trouble, is that at the end of the year, you or your bookkeeper might erroneously record some deposits as income, and consequently pay taxes on more money than you’ve actually made.
3. Set aside money for paying taxes.
Why it’s helpful: The IRS can levy penalties and interest for not filing quarterly tax returns on time.
What to do: Systematically put a portion of money aside throughout the year for taxes. Then note tax deadlines on your calendar, along with prep time if you need it, to make sure you actually make payments when they’re due.
4. Keep a close eye on your invoices.
Why it’s helpful: Late and unpaid bills hurt your cash flow.
What to do: Assign someone in your organizations to track your billing. Then put a process in place for issuing a second invoice, making a phone call and perhaps levying penalties such as extra fees at certain deadlines.
“You want to have a plan for what happens if they’re 30, 60 or 90 days late”.
This is extremely important. I started this just last year and unfortunately had some clients not pay their invoices on time, which made me fall short on paying my bills, but I did collect over $2500 in late fees. That is alot of money!
Some entrepreneurs believe that once they’ve sent out an invoice, they’ve taken care of billing. Not so, “Every late payment is an interest-free loan and hurts your cash flow, unless you have terms set in place to protect you.”
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