By Sacha Ferrandi
There are many advantages to owning your own business. For the most part, you get to do a job you are passionate about, you can create your own schedule, and you don’t have someone else setting your pay. However, with these advantages, there are also tasks you have to complete that you probably aren’t excited to do. For many entrepreneurs this includes handling business expenses. It is one of those tasks that needs to be done, but the majority of business owners don’t look forward to it.
If you dread managing your business expenses, here are four tips to help you through the process.
1. Maintain Detailed Records of Spending
When tax time rolls around, are you digging around in your desk until you find the box or envelope that you have been shoving all of your receipts in throughout the year? Do you take the pile of receipts to your accountant hoping they can sort it all out for you? If this sounds familiar, you are most likely missing out on one of the most important steps in running your business.
Keeping detailed records of your spending not only makes tax time easier for you, it will also help you manage your overall budget throughout the year. When you know where your money is going and how frequently, you are able to make adjustments when necessary. There are many services available, such as QuickBooks, which are fairly easy to use for beginners and will help you track your business expenses throughout the year.
When you don’t keep detailed records, you also run the risk of missing out on possible deductions. It’s easy to lose receipts and invoices when you don’t have a process in place to handle and keep them organized.
2. Know What’s Deductible
When it comes to spending money on behalf of your company, the IRS helps out by allowing you to deduct legitimate business expenses. However, most business owners don’t know what actually qualifies. They either try to deduct things that they shouldn’t or they miss deductions and pay higher taxes than they need to. Deducting things that are not actually deductible can be a red flag to the IRS. Once they find that you are doing this, they will quickly begin to do back-audits to see if you were doing the same thing in the past.
Talk to an accountant to get a complete list of business expenditures that are deductible. They can also help fill you in on the commonly missed items such as home office cost and meeting commuting mileage.
3. Review Your Vendors Regularly
Many business owners make the mistake of getting their vendors in place and then forgetting about them. This is a surefire way to spend money unnecessarily. You should be reviewing your vendors on a regular basis. At the very least, review your vendors annually. Each year, ask for bids from other vendors and make sure to let your existing vendor know that you’re comparing prices and terms. By doing this, you make sure your vendors are always providing you with the best offerings for your business. This stops them from driving your prices up after you have been using them for a few years.
4. Keep Business and Personal Finances Separate
Keeping your business and personal expenses separate from each other will always make managing your business finances easier. You might think you can get away with using one account for both personal and business expenses, but in reality, it is always a bad idea. At first, you might be able to remember what expenses were for the business and what were personal, but when you get busy and the invoices begin to stack up, it is easy to forget to go back and separate them out. This makes the end of year accounting a nightmare. And, if the IRS catches you deducting personal expenses, you will find yourself in the midst of a messy audit.
Managing your business finances can be a tricky. To ensure you are managing them correctly, get help from a professional business accountant when possible. Ask questions to make sure you are taking full advantage of the benefits you have as a small business owner.
