The life of an entrepreneur is hectic. There’s so much to do everyday, and the non-key tasks often slide further and further down your to-do list until they become an emergency.
Bookkeeping is often one of the first victims to fall.
It doesn’t directly increase profits or satisfy customers, so gets ignored until the last possible second. Of course, this leads to an easily avoidable mess.
There are lots of great reasons to stay on top of your bookkeeping, but the most obvious being that you need them in order to prepare your taxes.
Being prepared is the best way to avoid unnecessary stress to your life, so here are my top 3 tips to being prepared for tax time.
Tracking Expenses (with proof!)
The most basic definition of bookkeeping is the tracking of your income and expenses. There is a lot more to the process than that, but this is a good place to start.
Quick quiz! What was your biggest expense during the week of June 11th, 2018? Don’t know? Why would you! That’s not the type of data that the human brain reliably tracks. But do you know what does? Your handy bookkeeping software.
I would never expect a business owner to be able to recite their expenses or bills for an entire year, but this is exactly what you expect of yourselves by leaving bookkeeping until right before tax time.
Most of us have a tough time remembering what we had for dinner two weeks ago, but somehow expect to remember what that darn $4.76 charge was for from almost an entire year ago.
Do future-you a favor and just stay on top of it. A little work now can save you a whole lot of hurt down the road.
Set Aside Income
I’ve found that the best way to make sure I have enough for taxes is to set it aside. I prefer to do this automatically, so I don’t ever see it as profit and it’s there for taxes as needed.
This is a common practice with a typical employee position. You can set-up your paycheck so certain percentages move to specified accounts as the paychecks roll in. Most people have money coming out of standard paychecks to go into retirement funds, insurance, and/or a savings account.
You can have a similar set-up within your business. Anytime an invoice gets paid, a set percentage moves into a separate account that only gets used for taxes. You know that this income is going to be taxed, so it makes sense to just set that portion aside right when it comes in.
Find an expert
Bookkeeping is complicated. For a very long time it was considered simple data entry work, but times are changing. The invention and proliferation of bookkeeping software means that the role of a bookkeeper has changed.
Since the data entry portion of your books can be mostly automated, your bookkeeper should be taking on a more advisory role. If your bookkeeper can’t help you with budgeting, bench-marking, or recommendations for improvement, than it is probably time to revamp your systems.
It’s important to work with bookkeepers and tax preparers that you trust. They shouldn’t be the only ones with access to your books, and they shouldn’t be the only ones recording bills and payments. And they should be willing and able to work together whenever necessary.
Just keep in mind that if you don’t know much about accounting, then you need to make sure you're working with knowledgeable professionals that can help you through the process
Bottom line:
Taxes aren’t fun, but there are simple ways that you can ease that stress. Making your books a priority all year will allow you to make sound business decisions anytime as well as be prepared for tax time when it comes back around.
A great bookkeeper is one that makes you to stay on top of your business finances, and provides insight into how the business is running day-to-day. Plugging money leaks is simple, but only if you catch them before it becomes a flood.
Tax time doesn’t have to be your favorite time of year. By following these 3 tips, you can keep fear and stress levels to a minimum.