The one thing guaranteed to make filing a tax return one big headache is if your accounts are in a mess. And the one thing guaranteed to keep your accounts in order is to take maintaining your books seriously.
But that doesn’t mean you need to make it harder than it actually is. When you’re organized and take a methodical approach, the whole process goes much faster and smoother.
Keep Business Finances Separated from Personal
Owners of small businesses, freelancers and homeworkers are often tempted to run their business finances out of their personal bank accounts.
Where you keep your money is, of course, up to you. But your business finances will be easier to organize when you record expenses and payments in a dedicated business account. Eventually, you’ll have to go through all your transactions anyway when you file your taxes, so make the job easier by opening an account just for business transactions.
Save ALL Your Receipts
Even very small amounts such as office supplies or bus fares can mount up over the year. Log each business purchase or payment in your books, and cross reference the entry to the corresponding receipt.
It may be easier if you number receipts yourself rather than using the number printed on the receipt itself. In your own records, it doesn’t matter. What matters is a clear reference between the item or service and the proof that you paid for it.
Next, store receipts safely. You could have folders for each month or week (depending on how many receipts you accumulate) and some people still throw them all in a shoebox. Try not to do that because it makes the job of sorting them later so much harder. A minute spent daily will save hours of frustration months in the future.
Online storage of digital records needs equal care. Have a logical file-naming convention you understand and stick to it. Little is more frustrating than knowing you have a digital record somewhere online if only you could remember what you called it.
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Keep Things as Simple as Possible
If your business accounts are simple and straightforward, you don’t need expensive accounting software that forces you to enter details in fields you don’t use or need.
An Excel workbook will do the job, as would an accounts ledger where you enter figures by hand. Alternatively, subscriptions to online accounting software makes the job really easy, especially as you can sync your bank feed so it’s automatically updated with your latest transactions.
Think carefully about what records you actually need to keep, and devise a system that fits. A professional bookkeeper could advise if you’re really struggling, but having an easy system will encourage you to keep your books up to date.
Prepare for Tax Bills
Put aside a percentage of earnings so you’re prepared for tax bills. This is another aspect of running a business that lands many people in trouble, yet it’s simple to avoid with a little discipline.
Work out what percentage of earnings you’ll need to save to cover your tax liability and there won’t be any unpleasant surprises at the end of the financial year.
Don’t Be Afraid to Get Professional Help
Some people simply cannot keep up with their business accounts, and that’s fine too. You just have to admit it’s not your favorite activity, then delegate the task.
Accountants will prepare your tax return and file it for you, and their job will be very much easier (and their fees lower) if you have good books in the first place. A bookkeeper can help you stay on top of the daily maintenance needed, and make sure your books are presented in the way your accountant prefers. Both types of professional services can save you more than they cost, since they know exactly how to optimize your accounts and make sure you’re claiming all your allowances.
Keeping business accounts in order means doing a little each day, or each week if transactions are not very frequent. By doing just a little on a regular basis, your books will always be in order and you’ll have a much deeper understanding of your whole business financial picture through the year.
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