If you’re one of many entrepreneurs that has jumped into the deep end without thinking too much about the financial basics of your business, you probably identify with the term “shoebox accounting”. If you just glanced over at your box or random pile of expense receipts, this article is for you.
Entrepreneurs often juggle many different tasks when their business is newly formed. Unfortunately, accounting and bookkeeping often don't register as something important that you need to take care of regularly. After all, you only have to file your taxes once a year, right?
This sort of thinking often causes panic among business owners when their corporate year end does come around. Then follows the mad scramble to pull together all the necessary documents and get them to your accountant so you can file on time, which causes frustration each year for both business owner and accountant.
So, if you’re ready to leave your shoebox accounting ways behind you, here are 5 things we recommend all business owners do to make sure they are proactively managing their taxes.
- If you don’t feel comfortable doing your own bookkeeping (or even if you do), it’s a good idea to hire a professional bookkeeper. Just think about all the other things you could be doing while an expert handles this part of your business. Ask around your network for referrals and choose a bookkeeper that is familiar with your industry and/or business size.
- Have your bookkeeper complete your books at least once a month and make sure they are producing a financial statement that you can easily review. You may think you know where your business stands, but you’d be surprised to see how many expenses you had forgotten about along the way. Your financial statements bring you back to reality and make sure you’re keeping your cash flow at a healthy level.
- Even when you do have a bookkeeper helping you to stay on top of things, it also helps to put an organization system in place for your payables and receivables. An abundance of expense tracking software in this field will help you handle this, so find one that you feel is easy to work with and commit to using it.
- You should have a rough estimate of your gross earnings in the coming fiscal year. When you have this estimate, you can determine which tax bracket you would most likely fall into and start setting aside the corresponding percentage of your earnings each month. This will make paying your taxes at year end less daunting.
- Find an accountant you trust and ask them questions. Proactively finding answers to issues you are unsure about will save you time and money. Holding off on those questions until it’s time to file your year end may put you in a situation where it’s too late to get advice, and you may lose out on valuable deductions as a result.
Being proactive about managing your taxes is largely about putting systems in place and making sure you follow through with them. You may find the initial setup daunting, but once everything is in place, you’ll experience fewer headaches and give yourself the time and energy to continue building your business.