Keeping it all Straight: Effective Habits of a Business Owner

By Becky Paulk, Simplify Professional Services, Rogers

In keeping it all straight, here are 10 more habits business owners should practice.  Not only will these help you at tax time and keep your accountant happy, they are part of the accurate financial statements you need to develop smart, profitable business strategies. 

1.     Collect a W-9 from vendors.  A W-9 is an IRS form used to request a taxpayer identification number (TIN) from an independent contractor or vendor that is not a corporation.  A TIN is needed for year-end processing of 1099s, which businesses are required to file on services over $600 in a tax year.  It’s much simpler to collect this up front before paying for services rather than scrambling at year-end as 1099s are being filed.

2.     Back up data regularly.  Loss of data, especially financial data is a frustrating and time consuming mess.  Avoid loss and wasted time by backing up to a portable hard drive, or check out cloud services such as carbonite.com or mozy.com for online backup at a reasonable price. 

3.     Properly document deposits. Business owners should want to know what customers, items, or services drive sales and will use some type of invoicing system to track them.  Payments need to be matched or “received” against those invoices.  Since those payments become deposits, save time by tying payments received to invoices.

4.     Set up a separate bank account for sales tax collected. Sales tax is collected on behalf of the state, and later reported and paid.  These monies go into cash flow and often get spent, making a scramble to pay sales tax on time.  Instead, move sale tax monies to a separate account as it’s collected. The funds will be available when you need them.

5.     Set up a separate bank account for payroll tax withheld. Payroll taxes are the responsibility of the business even after paychecks have been issued to the employees. With the same logic as above, moving those monies to a separate bank account ensures funds are available when the time comes to make tax deposits and report payroll taxes to federal and state agencies.

6.     Establish a filing system right for your business.  Every business is different, and while accounting rules are the same across all businesses, it is imperative your business has the ability to reference financial records.  Set up a system that is consistent and gives you the ability to understand what is happening in your business.

7.     If you sell goods, establish an inventory tracking system.  Inventory is an asset in business, the cost of which is not written off until the inventory is sold or disposed of.  Maintain a system to track this important asset and allows you to easily reconcile inventory and cost of goods sold at year-end.

8.     Develop best practices using a petty cash. While it is never a good practice to take cash withdrawals from your business account, sometimes business owners need a way to pay small purchases with out using a credit card or writing a check. If you have a petty cash account, maintain receipts to document monies spent, and reconcile petty cash monthly to ensure you don’t lose track of those expenses.

9.     Know who owes you and who you owe.  Accounts receivable refers to those who owe you. Accounts payable refers to those who you owe. Understanding the balances in these two accounts helps business owners have a clear knowledge of their business welfare, and the ability to make strategic business decisions.

10.   Maintain open communication with your bookkeeper.  Entrepreneurs often use a bookkeeper because they recognize they don’t have time to handle this important function.  Allows for open communication between business owner and bookkeeper, and schedule one on one time to discuss the required financial aspects of the business.