7 Financial Must-Dos for Small Businesses

If you own a business or are planning to start a small business, these are the essential practices to ensure that you are financially responsible. These steps will set your business up for success.

1.  Obtain an EIN number:

An EIN number is essentially a social security number for your business. By obtaining an EIN number, you are creating a level of separation between you personally and your business. You will need to provide your EIN number to others as you do business. This way, you are protecting your Social Security number and preventing identity theft.You can contact a professional to help you, or if you are comfortable, you can set this up by navigating the IRS website.

2. Open a bank account in the business name

Open a business bank account. Deposit all your income into this account and pay for all of your expenses from the business bank account. This will ensure that your bookkeeping is simple and accurate. It legitimizes your business. It captures your income and expenses for tracking profitability and preparing for taxes.

3. Form relationships with professionals

Every small business should have relationships with professionals who will help ensure the success of the business. These relationships include: lawyer, CPA, bookkeeper and insurance agent at the very least. You will likely also need an IT specialist and a banker. Forming these relationships and hiring the right professionals will foster the growth and success of your business.

4. Do your books

We cannot stress that you must have a bookkeeping system in place. You need to do your books yourself in a timely and accurate manner OR outsource your bookkeeping. This is the core measure of the financial stability of your business. It will help you make decisions about your company. Without an accurate set of books, you cannot file taxes, cannot obtain business financing, and you cannot make informed decisions about your business. We recommend that you use a professional.  You might want to do this yourself as a business owner and you might have the skills to do so.  As a business owner, you will wear many hats, you will be pulled in a lot of directions and books tend to be put to the bottom of your to do list.  Outsourcing them is a great option.

5. Pay your estimated taxes/payroll taxes

Stay on the good side of the IRS by paying your taxes. Keep yourself out of trouble with the IRS and prevent yourself from needing to come up with a lump sum when you file your taxes. It is difficult. We get it. Cash flow is an issue and paying taxes is the last thing anyone wants to do. But you won’t do yourself any favors by skipping these payments. You will need an accurate set of books to determine how much to pay on a quarterly basis.

6. Track your profit

You may have started your business because you have a hobby that you’ve turned into a business. But to stay in business, you must be profitable. Track your profitability by having a bookkeeping process in place and operating. 

7. Keep your receipts

You must keep your receipts. Many business owners believe that your bank/credit card statement is sufficient. It is not. If you are audited, the IRS will want to see actual receipts or electronic copies of receipts.  We recommend that you store receipts electronically.

Follow these practices to help ensure the financial health of your small business. Bookkeeping and Financial Service Providers such as Incline Business Essentials can help you with these steps. 

Why You Need Bookkeeping

If you run a business, the act of bookkeeping is essential. Let’s start by defining bookkeeping. What exactly is “Bookkeeping?”

Bookkeeping is the process of recording the financial transactions of your company. Bookkeeping categorizes the money coming into your business as income. Expenses refer to money that your business spends in order to operate. The act of bookkeeping organizes your expenses into categories that are used to file your taxes.

Now let’s talk about why this matters.  

File Your Taxes

As a business owner, you will likely hire a CPA to file your taxes. You will need to provide the CPA with your income and your expenses. Your taxes cannot be filed without this information. This leads to the next important reason for keeping an accurate set of books.  

Pay Fewer Taxes

This is probably the most attractive reason to have a bookkeeping system in place. Bookkeeping identifies all of your transactions so that nothing slips through the cracks. You must categorize each and every transaction that goes through your bank account. By keeping an accurate set of books, you will know exactly what you spend on gas or office supplies, or advertising. When you are gathering your data at the end of the year, you aren’t trying to remember how much you spent on that new computer or which client you took to lunch in May. Without a clear bookkeeping system, you will invariably miss out on deductions. You must have a plan and a process to ensure that deductions are captured.

Your expenses must be organized into categories approved by the IRS in order to be considered “deductions”. Without deductions, you will pay taxes on the entire income of your business. With deductions, you will rightfully cut this tax bill thereby saving you and your business money. For example, if your business brings in $100,000 without deductions, you might pay the IRS upwards of $25,000. But, if you can clearly show business expenses of $60,000, you might pay $10,000. This is a tax savings of $15K — not just nickels and dimes!

Track Your Profit

Profit is a key indicator of your business’s success. You can only determine your profitability if you are tracking your income and expenses.

Make Decisions About Your Business

Bookkeeping can help you make decisions about your business. Is it a good time to hire? Should you be increasing your prices? Are you spending too much on utilities? These decisions are guided by your business’s financial health.

Financing

In order to get financing for your business, you will need to provide the lender a set of books showing your income and expenses. Banks will require you to show your expenses vs. your revenue, otherwise known as your Income Statement or Profit and Loss. Bookkeeping will provide this report.

Catch Mistakes

Were you overcharged or charged twice for a service? Are you paying for a subscription that you are no longer using? You will catch these transactions through your bookkeeping because you are looking closely at every transaction.

Where Is Your Money Going?

Through bookkeeping, you will understand where your money is going.  This will help you budget and plan cash flow for the development of your business.

Bookkeeping will save you money by saving on taxes, cutting down on mistakes, guiding you through financial decisions, and improving your cash flow.  Business owners often want to do this on their own. Sometimes this works. But often the books are the piece of the business that well-intentioned owners plan to do and just don’t have enough time in the day.  

Bookkeeping is essential but it does take time, pulling you away from your actual business and preventing you from focusing on your clients.  As a business owner, you wear so many hats.  This is one that you can easily outsource with confidence. Reach out for a complementary consultation to see if our services would be a good fit for your business.

Subcontractor Compliance and 1099s

This is the time of year that we start preparing for 1099s and Insurance Audits.1099s must be issued in January for all appropriate subcontractors. Insurance Audits apply only to those of you whose insurance companies require the annual audit. You know who you are!

Our Incline Team will be working together to facilitate this process. You may be hearing from an unfamiliar team member. Please know that this is our team collaborating and assisting one another to efficiently handle this process.  

Subcontractors and 1099s

As a business, you are required to issue 1099s to any individual OR unincorporated business that you pay more than $600 for a service within the fiscal year. For example, if you pay someone $800 to install shelving in your office, you must issue a 1099 to that individual. If you pay a web design company $3000 to update your website, you must issue a 1099 to that company if they are not a corporation. If you pay rent over $600 each year, you must issue a 1099 to your landlord. There are additional nuances but you get the picture. We will be running vendor reports to determine who needs to be issued a 1099 and will be helping to collect the required W9 from the individual or company. This means we will be contacting your vendors on your behalf.  

Subcontractors and Insurance Audits

Depending on your industry, you may have an annual insurance audit. Typically, this is your insurance company wanting proof that your subcontractors have their own insurance. This is very common in the construction industry although we are seeing this branch out into a variety of industries. We will determine who should be providing proof of insurance and will reach out to collect the insurance certificates. When you audit year cycles, will complete the audit paperwork on your behalf.  

Through all of these processes, we do our best to handle as much as possible ourselves. That being said, we may need contact information from your vendors. We may need clarification about exactly what you are paying the vendors for. We may have a vendor who is not completing the necessary paperwork and will contact you to step in.  

We are starting this process now so that we will be prepared for the January deadline and for insurance audit deadlines. Just know that we are working behind the scenes to ensure that all necessary paperwork is collected to comply with these requirements.

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