You started a side gig, started making money, and now what do you do? I’m going to share some best practices on what to do first (even if you’ve been in business for some time), what to keep track of, and how to do it so at the end of the year tax time is a breeze. Here’s a great read on resources for starting your business from another We Spot writer!
Best Practice #1 – Separate Business From Personal
The first thing to do is get an EIN number for your business. This will make opening business accounts much simpler! Getting an EIN number is FREE! If you find a site that makes you pay, DO NOT USE IT! The IRS has a FREE application and it will immediately give you an EIN. You can apply during M-F 7am to 10pm Eastern Time.
Once you have your business EIN, you can open your business checking account. I recommend looking first at your current banking relationships. Often times, your local bank or credit union will have great options for low maintenance fees. No matter the fee amount, the good news is the fees are a taxable expense – meaning you can write them off on your taxes.
You can also apply for a business credit card after you have your EIN. My favorite is the Spark Business Card through Capital One. No fees and easy application/approval process.
I also suggest opening a business PayPal account, if that is something you use to collect funds or pay others for business expenses.
Bookkeeping tip: Your original (and future) deposit into your business account from your personal account is called an owner’s investment.
Additional tip: you can also form an LLC to create a legal separation of your business from your personal life. You can do that by going to your state’s secretary of state website. Each state has a registration fee, as well as an annual filing requirement with the fees varying greatly. Some states, like Colorado, cost $50 to register and $10 a year for the annual filing. Other states, like California, cost $90 ($20 statement of information and $70 articles of organization) to register and $800 (and up) a year for the annual filing.
Best Practice #2 – Save Your Receipts
For a lot of businesses, many receipts come through email. Think website fees, professional development purchases, coaching fees, design fees, advertising online fees, even in person purchases that use square and send an emailed receipt.
Easy email tip: create a business folder and put all emailed receipts in there!
For paper receipts, there are apps like Dext that will pull out the essential info from your receipt when you take a photo of it and connect it with your accounting software. This is helpful because it connects the important backup documents. The best part about having an app is that you can take a photo of the receipt and toss it! Think parking receipts, dinner receipts, supply purchases, event tickets.
Best Practice #3 – Create a Routine
My suggestion is to pick a day each week and carve out 15 to 30 minutes. During that time, you can review your business accounts, business sales, and business expenses. This builds a habit to keep you in touch with the money that flows in and out of your business. I sit down to review the weekly sales, the places I’ve spent money, and I enter them both into my accounting software. I also look ahead to see what upcoming sales and expenses I expect to happen the following week. This helps me stay informed and allows me to make better financial decisions for my business. Creating a routine to review your business money will set you up for success.
Calendar tip: put a reminder on your phone, in your calendar that goes off every week to help develop your habit!
Best Practice #4 – Use a System – Spreadsheet or Software
Now that you have your business accounts, receipts, and working on a routine, you need somewhere to log these sales and expenses! If you’re just starting out, feel free to use a spreadsheet. Log the details of the date, the vendor you purchased from, the amount, and what the purchase is for. For example, I went to dinner with potential client. Date: July 21 Vendor: Delicious Diner Amount: $40 Note: dinner with Susie Potential Client
This is the same for sales. Log the details of the date, the client, the amount, and what they purchased from you. For example, Susie purchased a payroll template for $100. Date: July 22 Client: Susie Amount $100 Note: Payroll template
If you have subscribed to a bookkeeping software like QuickBooks Online (I use and recommend), or Wave, Xero, etc, you will log the same details in the software. You can also attach the receipt or invoice to the transaction. If you use an app like Dext, it will match the receipt to your transaction.
Bookkeeping tip: if you want to purchase software, check out your options. Then ask a bookkeeper if they have recommendations and discounts (we usually do!)
Best practice #5 – Prep for Tax Time
With a routine and system in place, prepping for tax time will be a breeze.
Whether it is a spreadsheet or a software, you can total up your sales and expenses. Since you have kept your receipts and invoices, you’ll have your backup documentation at your fingertips.
Gather any tax forms you have received and keep together in a folder.
I ALWAYS recommend using a tax preparer or at the least meeting with someone to review your tax needs.
The opinions expressed in this article are solely those of the writer and do not necessarily represent those of The We Spot, it’s employees, sponsors, or