If you’ve been courageous enough to follow through with your entrepreneurial mindset, you know that being self-employed is a double-edged sword.
While that type of work arrangement allows flexibility and independence, it also means burning the midnight oil while filling out all the bank, tax, insurance, and other paperwork.
To manage your accounts correctly and avoid any errors that could cost you valuable time and money, you need to be aware of all factors that affect your records as a self-employed individual.
In order to help you understand all entrepreneurial account intricacies, this article illustrates a step-by-step guide to effortless and accurate account management for self-employed business owners.
1) Open a Business-Dedicated Bank Account
Keeping your personal incomes and business earnings separate will ensure your business financial records are easy to manage and compliant with legal requirements.
Thus, when starting your venture, your first task is to open a business-dedicated bank account. Having such an account means you won’t have to keep meticulous records of money received and withdrawn and specify which expenses were business-related and which personal.
Moreover, having all your enterprise expenses and earnings in one place will allow you to record your income and profits more efficiently and thus make more data-driven decisions to grow your business.
Set up a weekly or a monthly schedule to transfer your earnings from your business to your personal bank account.
2) Set up a Tax Bank Account
Having a tax-dedicated bank account is so critical for beginner entrepreneurs as it can literally make or break your business.
Namely, if you’re self-employed, you will be paying your taxes the year after earning your income. In other words, on all the income you had made in 2021, you’ll pay taxes in 2022.
For many self-employed individuals, problems arise if this tax-paying obligation slips their minds, or they expect to earn more in the following year and thus cover these tax expenses, but they don’t.
When a business lacks funds to pay its taxes, business owners need to take a loan to settle their obligations, inadvertently pushing their company into further debt and downgrading their business credit score.
To avoid putting your business into such unfavorable circumstances, open a tax-dedicated bank account and transfer enough money – around 30% to 35% of all your earnings – to get you covered for the following year.
3) Get a Bookkeeping System
As soon as you’ve set up your business, start recording the expenditures and payments that pass through your bank account. Start recording everything from day one, and keep receipts for any financial transaction your business took part in.
You’ll quickly realize that invoices accumulate fast, even if you’ve only procured some office supplies, purchased gas for your car, and bought lunch for a prospective client. Therefore, establish a solid bookkeeping system and stick to it resolutely and regularly.
Choose an accounting approach that suits your needs. For example, if you reckon your business processes won’t require ample invoices, your bookkeeping system need not be a sophisticated software solution but rather a manually handled spreadsheet.
Spreadsheets, however, can limit your transaction capacities and work best for business owners who prefer recording and sending their invoices. Alternatively, you can opt for bookkeeping software that boasts features such as invoice creation and automatic feeds collecting data from your bank account.
Of course, if at any time you require professional advice or assistance in your bookkeeping processes, reach out to some of the top accounting firms to leverage their experience and knowledge.
4) Claim Your Business Expenses
In the previous section, we’ve mentioned you should attentively keep all the receipts for your business purchases – even those of minor costs, such as stationery, cleaning supplies, bus tickets etc.
Businesses are eligible for tax returns on some of their expenditures, and if you use your home as an office, you can even claim a proportion of your domestic bills.
While tax deductibles differ depending on unique state laws and regulations, here is a list of some expenses you can apply to claim back:
- office equipment procurements
- advertising fees
- delivery charges
- heating and lighting of business premises
- office stationery
- bank charges on your business account(s)
- business travel expenses
5) Register for VAT
Depending on your business turnover and other factors, you might be legally obliged to register for VAT; yet, entering the VAT system can be preferable even if your business is below the threshold.
For example, being registered for VAT can make your business seem more prominent and trustworthy in your clients’ eyes and allow you to retrieve any VAT paid on purchases for your company.
To Wrap Up
Keeping your business’s financial records, i.e., doing your books on your own, can seem daunting, especially if you’ve just set up your entrepreneurship venture.
Account management is essential for ensuring your business is profitable and purposeful and, at the same time, compliant with all legal requirements. Thus, to expand your business without much bookkeeping hassle, you should follow the advice outlined in this text.
Author: Philipe Hills
Bio: Philipe is a marketing specialist that specializes in driving business through digital, visual, and content marketing techniques, currently based in Los Angeles.