Managing your finances yourself can be a very daunting task. If it’s not your wheelhouse it can be overwhelming, confusing and frustrating. And when those feelings set in, often times everything gets murky and transactions aren’t coded properly, if they are recorded at all.
So here are 7 do’s and don’ts that you should heed to, to ensure you maintain your business finances properly.
1. DO have a bookkeeper or accountant.
Having a bookkeeper or accountant is essential for your business. Regardless of the size of your business. You could be a solopreneur earning less than $50K a year or you can be the CEO of a multi-million dollar company. It doesn’t matter, the importance is the same. You need this person to help you track the cash inflows and outflows in your business, as well as the sales and expenditures. How else will you know what is going on in your business? This person should also be good at helping you understand what those reports say about your business. This help will allow you to make prudent business decisions that are vital to the success of your business.
2. DON’T try and handle your accounting yourself.
Look, if you are a contractor then be a contractor. If you are a web designer then be a web designer. If you are a clothes designer or hair stylist then be a clothes designer or hair stylist. Don’t try to be the numbers person when you know good and well you are not good with numbers. Be good at YOUR talent; not someone else’s talent. There are a lot, and I mean A LOT of rules and regulations around proper financial management and accounting. Without the proper training and education you are guaranteed to make mistakes and cause more damage. Trust me – it’s worth the investment now rather than paying to fix it later.
3. DO use an accounting system.
Let me be the first to say, well maybe not the first, to tell you that systems are your friend. Using an accounting system creates organization within your business. And organized finances means peace of mind. Peace of mind means reduced stress at the end of the year when taxes are due. Trust me when I tell you, your bookkeeper or accountant do not like to shuffle through those receipts every year. An accounting system will make their job better and allow them to focus on more important tasks for you, like keeping you from owing taxes. Having a system also ensures that you are tracking your transactions consistently. Systems on how you are going to handle your tasks regularly.
4. DON’T use Microsoft Excel or Word for your tracking and billing.
While Microsoft Office products are designed to help you effectively operate your business, they are not the best option for tracking your business finances. Using these systems creates more risk for mistakes and errors because there are no checks and balances around double entry, duplication or balancing. The same applies for generating bills and financial reports easily and quickly. These systems force everything to be done manually, which takes more time. And who has time to do something extra? I know I don’t. You need to follow step #3 and implement an accounting system that will allow you to also create automation in your business, which saves you time.
5. DO work with a tax accountant for tax planning.
No matter where you are in your business, it’s important for you to remember that, unless you have placed yourself on payroll, you are responsible for your own taxes. No one is withholding them and paying them for you. A good tax accountant will work with you to predict how your business will perform and let you know how much you should pay in during the year to avoid a big surprise on April 15th. There are all sorts of tax laws and regulations that can help you reduce your tax liability, and unless you work on taxes regularly there is no way you can know them all and how they affect you and your business. One person’s tax break is not necessarily the next person’s tax break. Don’t go by your friends return, consult a professional.
6. DON’T avoid paying taxes.
Paying taxes is one of the two things we MUST do in life. Trying to not pay taxes creates so many unnecessary issues and expenses in your business. Such as paying penalties and interest for filing and paying late or not at all. Pay your taxes on time to avoid this from happening. And make sure you follow all of the relevant tax laws and regulations that are relevant to your business. And not just at the federal level, also at your state and county level.
7. DO create a budget and follow it.
Preparing a budget will help you not only create a plan on how your business is going to make money and spend money but also when. That’s all it is – a plan. See, you have to be prepared and know how your business is operating financially. If you don’t have a plan, work with an accountant to create one. And once you have it created – FOLLOW IT! Match your revenues and expenses monthly to determine how your business is performing compared to your goals. This will allow to you make any necessary adjustments if you need to or shift your product or service focus during the year to also ensure that you meet your goals. This analytical process is what will help you steer you business in the right direction and keep it going that way.
Do you have any do or don’t practices that can help our community that you think should be on this list?