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Top Small Business Accounting Tips in 2024

Small business owners wear several hats– balancing tasks and challenges in the areas of marketing, hiring, customer service, and financial accounting.

Some of the very best basic accounting tips and tricks for small business owners in 2024 include:

Accurately Record All Sources of Income

Incoming cash flow isn’t limited to revenue from sales. It is important to keep track of all forms of income– loans, earnings from sales, and any other type of cash inflow. Poor record keeping of income can result in paying less on your taxes than you actually owe.

Consequences of underpaying on your taxes include IRS penalties, which are easily avoidable if you are keeping accurate records of your income.

Closely Monitor Invoices and Accounts Receivable

You need to be diligent about how much money you are owed by whom. Sales are worth celebrating but earning enough money to become a successful business is essential.

Sending an invoice doesn’t ensure you’ll get paid. To increase the odds of prompt payment, opt to send invoices immediately following a job, and follow up with reminders as the deadline nears. To encourage your customers to pay on time, consider offering early payment discounts and/or accepting online payments.

Automating your Accounts Receivable system can streamline and speed up this process. Apps and software can help you with this, offering email templates to communicate with your customers. These apps can also send payment reminders, thank you notes, and warnings for past due accounts.

Track Every Business Expense

As with income, every expense should also be categorized/labeled. Keeping track of your expenses can help you maximize any available tax write-offs/credits.

Using your business credit card for all purchases can help you easily track those expenses in one place- your credit card statement.

Bonus: you may earn rewards or cash back for your expenses, depending on the credit card you choose.

Be aware of technology available to you, including accounting software that can store copies of checks and invoices you’ve paid, as well as Receipt Capture systems, which can house digital copies of receipts (which can be handy in the event you’re ever audited).

Separating Businesses and Personal Expenses

By keeping business and personal expenses in dedicated bank accounts, you save yourself a significant amount of time when the day comes you need to add up your deductible business expenses.

You are doing yourself a favor if from the get-go you are using different accounts for your business and personal purchases. This makes it so much easier to clearly document everything.

Aside from bank accounts, keeping a separate business credit card is a good idea. This is a step that will help your LLC or corporation limit legal exposure to business debts.

Keeping expenses clearly separate protects you from tax penalties as well. Generally speaking, deducting personal expenses from your business tax return isn’t allowed.

Exception: If a home office or a vehicle is used for business and personal reasons, you are allowed to deduct the portion of time used for business.

Take note of this because the penalty can be high– as high as 75% of the additional tax owed.

Set Aside A Regular Time to Update Your Books

Without dedicated time set aside for bookkeeping, it is easy to allow invoices and receipts to pile up. Block out a time every week and stick to it. Use this time to get all your paperwork in order.

During this weekly time, make sure you are also looking at the following reports:

  • Profit and Loss: This is the total Sales minus total Expenses. What remains is your
    profit (or loss). This is a report you should know well and be using regularly.
  • Balance Sheet: This will list your assets and liabilities. The difference between the two
    is your equity. This report is a picture of your company’s overall health.
  • Accounts Receivable Aging: This report lists how much money your customers owe you– and how long they’ve owed it. This report helps you know who you need to contact to work on getting paid what you are owed.

Doing this will save enormous amounts of time when tax season arrives, because you won’t have any catch-up work!

Expect Major Expenses

Excellent record keeping of your expenses is imperative, and so is being mentally and financially prepared for major expenses. Even if they’re unexpected in nature, if you go ahead and prepare for the unexpected, you won’t be caught off guard or put in a pinch financially.

Inevitably, equipment is going to fail or become obsolete and need replaced at some time, computers will need to be upgraded, and tax deadlines are going to loom. Oftentimes, large capital expenses come up during a slower month– expect this and plan accordingly.

Also know that Section 179, an IRS provision, allows you to deduct up to $1 million of business property and equipment the year you purchase it (instead of depreciating it year after year). A large purchase may hurt now, but there are some tax breaks that may benefit you.

Keep Tabs on Labor Costs

The majority of your business’s budget will likely be allocated to paying employees/yourself. You don’t want to over or under pay, so good record keeping regarding overtime and any benefits you offer can be important.

Payroll taxes have their own set of rules and deadlines separate from income taxes. Your accounting software (or your accountant) should be able to help you calculate and pay payroll taxes.

Keep Excellent Inventory Records

The majority of your business’s budget will likely be allocated to paying employees/yourself. You don’t want to over or under pay, so good record keeping regarding overtime and any benefits you offer can be important.

Payroll taxes have their own set of rules and deadlines separate from income taxes. Your accounting software (or your accountant) should be able to help you calculate and pay payroll taxes.

Use Available Technology/Accounting Software

If there’s a way to automate something, do it. This will simplify your paper stream and make records so much easier to keep track of than hunting down a stack of paper receipts/invoices. There’s an app for pretty much anything you can imagine in this day in age– don’t be afraid to learn how to use them.

Accounting software is an invaluable tool for any small business. You can use the software yourself or outsource and have a bookkeeper or accountant use it for your business. Most people opt for QuickBooks online, but there are several other available options as well.

Quality accounting software allows you to link your bank account or credit card, then tracks all of your income and expenses, categorizes them, allows you to send and pay invoices, and generates reports.

Also keep in mind, while technology can manage many aspects of your business, you still need to be involved. A quality app will allow you to fine tune your preferences and customize the way the app runs. Your company’s needs will be different than someone else’s, so your involvement is essential.

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