What does tax time look like for your small business?
Are you calmly organised so that it’s just another date on the calendar? Or, are you running around in mad panic trying to sort out all your paperwork?
It’s no secret that accounting and bookkeeping are some of the most maligned tasks faced by small business owners. Not many people leap out of bed with a cry of, “Bookkeeping, YES!”
Assuming that you’ve probably already set yourself up with a digital-based accounting software, here are some “hacks” to make your business bookkeeping more painless.
Hack #1: Categorise Expenses
Anyone who has spent hours (or paid their accountant several hours) to categorise all business expenses should appreciate this one. Setting up categories in your accounting software ahead of time is a huge time saver (and obviously a money-saver when you’re talking about paying an accountant!).
Most accounting softwares allow you to set up categories in the settings, which means as expenses come in, you simply need to assign them to a category. Much easier than trying to remember something 12 months later!
The categories you use will need to be specific to the tax authority you fall under, so you may want to consult with a qualified accountant in your area first to ensure you capture all relevant expense categories.
Some examples (which work for most places) may include: advertising, business fees, licenses and subscriptions, insurance, office expenses, rent, salaries, and telephone.
Another advantage to categorising your expenses early is that you can clearly see which categories tend to be attributed with more spending. This can help you to identify early any areas which may be getting out of control.
Hack #2: Store Receipts Immediately
Most business owners tend to be clear on income, especially if you’re running an online business where all payments come in and are credited automatically by your payment software. However, it’s a different story when it comes to monitoring expenses.
If you’re digging through boxes, pockets, wallets, drawers, or vehicles looking for business-related receipts, you should know there is a much better way to keep on top of them.
Accounting software such as Xero or Quickbooks allow you to take photos of receipts and immediately attach them to the expenses part of your bookkeeping. This means you can also categorise them immediately.
Another advantage of the photo option is that you don’t run the risk of receipts becoming illegible. Deterioration over time, especially on certain types of paper, can mean that you’re unable to read your older receipts at tax time.
If your accounting software doesn’t have this functionality, there are apps available to help you do this. Usually they also provide you with reporting and some of them will integrate directly with your accounting software if you prefer it. Shoeboxed is one example where you can take photos of receipts, but also physically send them in for storage, and Receipt Bank is another you may like to try.
Hack #3: Connect Bank Accounts and Credit Cards
The secret to more painless business bookkeeping is to automate as many functions as you possibly can. This means you should take advantage of features in your accounting software such as the ability to connect bank accounts and credit cards.
This functionality allows transactions to be pulled through and attributed automatically in your accounting software.
For this to be effective, of course you need to ensure that your business transactions only go through your business accounts and that no personal transactions go through.
Another point to note is that you need to ensure that the type of files your bank provides are compatible with what your accounting software accepts. (Or that you choose an accounting software which accepts the type of file your bank provides). Common file types are CSV, QIF, QFX, QBO and OFX.
Along the same lines, you can also connect payment gateways (Stripe, Paypal etc.) with accounting software if there is an integration available. If there isn’t one built-in, you can often find a “recipe” to do this with either Zapier or IFTTT.
Hack #4: Reconcile Weekly (Minimum)
Hey, it’s all about getting into good habits really. We know that many business owners procrastinate over bookwork because they’re not very fond of it, but if you set aside a small amount of time each week (even just an hour) to reconcile, it’s not such a big deal at the end of the financial year.
This helps you to pick up any errors as close as possible to the time they happened – it gets much more complicated to untangle that kind of thing if time has passed.
The other thing you should be doing with weekly reconciliations is following up with any late payments if your business works on an invoice basis. As Mark Gandy for Less Accounting says, call people even if they’re one day late. Everyone who is 30+ days late was once one day late. Having a clear follow-up process stops things from spiraling out of control.
Hack #5: Automate Invoicing Requirements
If you’re doing business across borders, the chances are you will come across different invoicing requirements for each country you have customers in.
What is your plan to deal with sales tax, GST or VAT invoicing requirements? What about local rules for what to include on invoices? These are important considerations because you don’t want to end up in a position where you’re being penalised for not following correct procedures.
The easiest solution is to choose a software which automatically deals with those invoicing requirements for you. You don’t want to have to add manual checks to every invoice that goes out.
Hack #6: Hire a VA
We’d always recommend that you keep a close eye over your own books, but if you’re too stretched to do them yourself or bookkeeping simply isn’t a strength of yours, finding a virtual assistant who specialises in bookkeeping could be a good answer for you. Your VA can take care of the reconciliation with your oversight, freeing up your time for other things.
If you go down this route, there are a few things you need to consider:
- How will they use your accounting system? Do you have access for multiple users?
- Are they conversant with the rules you need to comply with? For this reason, many business owners recommend hiring someone local to you.
- Do they have good references for this type of work?
- Many business owners recommend hiring someone who is a qualified CPA to ensure that everything is done right the first time. Do you want to do this (possibly at higher expense)? Or, hire a (qualified) bookkeeper but have your accountant file your returns at the end of the year?
- Your accountant may have recommendations for good bookkeepers they already work with. You may want to check with them.
- The International Virtual Assistants Association is a non-profit with well-qualified bookkeepers among its membership. You can source them via the jobs board. You may also find qualified virtual bookkeepers through professional associations in your own country.
Accounting tasks may not be your favourite business activity, but really they’re only as painful as you make them.
You can streamline your processes and save a lot of time if you put good systems in place and automate as much as possible.
Your system should also include regular time to reconcile your accounts, even if that means hiring a virtual bookkeeper. If you deal with a little, often, it becomes much less of a daunting task later on.
Note: At Quaderno we love providing helpful information and best practices about taxes, but we are not certified tax advisors. For further help, or if you are ever in doubt, please consult a professional tax advisor or the Tax Agency.