For an accountant and the early bird, January signals the start of tax season. We’re busy prepping our client’s books and hoping their doing the same. But not everyone loves tax season like we do; in fact, we know many people dread it. There’s all that paper work to find and put in one place. And don’t forget any receipts or paper work documenting applicable deductions. And it does seem that without fail your accountant will end up calling you to ask questions regarding your paperwork causing you to hunt up additional info and/or wrack your brain to remember the details of a purchase, expense, or contribution.
To keep everyone from having to spend a lot of extra time, we’ve put together a complete guide to preparing your personal taxes. If you follow this list, you’ll have a fairly comprehensive stack of paperwork that will streamline filing your taxes and hopefully help you avoid those phone calls form your accountant. Here’s what you’ll need to provide your CPA or gather together before you file your taxes for 2017:
General Information
Full names and relationship of all family members
Social security numbers for all family members
Birth dates for all family members
Filing Status – Married, Single, Head of Household, etc.
Full address
Estimated Payment Information (Dates and amounts of each payment) if applicable
Income Items (as applicable)
W2s received
1099s, 1098s, 1095s received (interest, dividends, capital gains, IRA withdrawals, etc.)
K1s received
Unemployment benefit statements
Social security benefit statements
Alimony
Rental property income documentation
Other Business income
Tax refunds from the State
Documentation related to any other income received
Deduction Items (as applicable, make sure to note questions you have and ask your CPA)
Health insurance status (were you covered all year?)
Changes in dependents
IRA/Retirement Contributions
Mortgage interest
Charitable contributions (cash, miles drive, other donations, etc.)
Medical expenses (including health insurance premiums)
Tip: Spend just a few minutes each day gathering the items listed in each section – General Information, Income Items, and Deduction Items. Store all your papers in a manila folder and keep it handy so that if you run across items you can slip them in and then sort later. Also keep a stack of sticky notes or a pad of paper and pen handy so you can to down questions for your accountant as you think of them. Print off the downloadable checklist below and paperclip it to the front of your folder – check off the items as you find them, so you can see your progress.
Year-end is a great time to do a lot of things. As accountants, wed recommend tying up loose ends in your business, working on closing your books, and gathering essential paperwork to make filing taxes a breeze. But the new year is also a great time to focus on things that went right in your business. It’s also a great time to look around and decide what things you might want to work on or learn more about.
We’ve gathered quite a bit of knowledge as we’ve worked with our clients. Some of the most frequently asked questions have stemmed from their desires to grow their business and go far beyond just the bookkeeping and financial aspects. We’ve learned right along with them in those areas (marketing, management, building community, etc), and given our best advice when it came to accounting matters and how to manage and track the dollars and cents.
After taking a look at our stats, we’ve pulled together the 10 most popular business & accounting posts for 2017. You’ll find they cover a lot of accounting but also a few great topics that seem to be on the minds of many small business owners. We hope you’ll find some key pieces of information that might help you as you plan your strategy for the new year ahead.
Everyone wants to save on taxes. Everyone. But who really has time to figure out all the details when it comes to taxes and bookkeeping for small businesses? We’ve taken some of the questions we hear the most from small business owners and those just starting out in entrepreneurship and answered them. They’re the same answers we give to our paying clients – it’s our best advice and it’s helped dozens of small businesses be successful when it comes to saving on taxes time and again. So grab a pen and something to write with – we hope you’ll find a few good ideas to apply to your own business.
Want to catch a sneak peek of what’s included in the webinar? Scroll down to find the questions we cover and when to start watching. You’ll be able to find the things you’re most interested about and have an idea of other things we cover so you can come back and watch on those later.
What’s an EIN and do I need it?
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What’s the best way to figure out how much I should set aside for taxes?
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Should I pay my taxes quarterly or just once a year?
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I only pay taxes on the money that I take out of the business, right?
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Is medical insurance premium tax exempt for joint filing?
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Is there anything I can do before the end of the year that will help me save on taxes?
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What is a SEP IRA?
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If it passes, will the proposed tax bill effect my 2017 taxes?
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How do I know how long it should take for me to break-even, or be out of the red, as I start my business?
With the holidays upon us, it’s the perfect time to make your list and check it twice when it comes to gift giving. We’re sure you’ve got it covered for family and friends, but have you thought about employees, clients, and co-workers? There are a ton of questions, dos and don’ts, and even great ideas on how the gifts you give can potentially provide you with a tax deduction. That said, you’re busy with the holiday bustle and don’t have time to call your accountant, figure out gift giving rules outlined by the IRS, or even create a strategy for your business holiday giving.
We’ve talked about it in year’s past, and this year we’ve pulled it together so you have an easy reference point. Figure out what to give, to whom, and how much to spend (and what that means in possible tax deductions). Plus, have a strategy for sending, giving and review the dos and don’ts of business holiday gift giving – to make your gift the most meaningful and this holiday season the least stressful.
During Q4, tax season seems like it’s lightyears away. But prepping for tax season now, can save you time and money come tax time. Here are 3 year-end contributions you might want to consider before you ring in the New Year, and how they’ll help your bottom line.
Year-End Contribution #1: Charitable Donations
No one will refute that it’s the season for giving. But did you know that giving can provide you with tax write-offs in addition to a host of warm fuzzies? It can. Charitable donations can impact taxes for the year in which they were given. To claim donations on your tax return here’s what you need:
Receipts are required from all IRS-qualified charities for any donations larger than $250 if you’re going to claim them.
You don’t always have to donate cash – household items, cars, boats, etc., can also be contributed. In such cases a specified amount can be deducted from such donations.
If you’re claiming donations to individual charities, you’ll need to itemize the deduction, rather than claim the standard deduction that is set each year by the IRS.
Tip: Even if you’re not planning to donate now, maybe you’ve donated sometime this year. Take a few minutes and pull out your books, calendar, and bank statements. Review them and gather the necessary paperwork so you’ve got it ready for tax time.
Year-End Contribution #2: Health Savings Account
Invest in your health. It’s something you’ll spend money on anyway, so why not put away some cash in your Health Savings Account (HSA). An HSA allows any unused money to rollover into the following year and when the money is used to pay for qualified medical expenses is tax-free.
Tip: Now is the time to check into HSA options if you don’t already have one. If you have it, but aren’t sure where you’re at, check into your balance, scheduled needed appointments, and see if you’re taking advantage of any employer matching opportunities. Even consider raising the amount you contribute each month so you’re building a reserve for those unexpected medical expenses that may crop up.
Year-End Contribution #3: Retirement Savings
It’s always a good time to consider investing in your future. In fact, it can provide you with a tax break now, and cash later. Any contributions made to retirement accounts are deducted from your taxable income, which can lead to reducing the amount of taxes you owe or possibly increase your refund.
IRAs allow for contributions to be made for the previous year right up until the tax-filing deadline. But if you’re looking to stash some cash into a 401(k) and take advantage of any employer matching, you’ll need to act before year end (Dec 31) or check out the specific requirements for your plan.
Tip: Talk to your accountant and see what type of suggestions they’d make when it comes to contribution to your retirement savings. They’ll have a handle on all the ins and outs and can help you strategically place your money so it’s working for you both now and in the long run.
So with these 3 suggestions in mind, what plans do you have to lessen your tax load before year end? If you’re got questions, lets talk.
FAQs for Year-End Tax Prep and Contributions
How can charitable donations impact my taxes?
Charitable donations can provide tax write-offs for the year in which they were given. To claim these deductions, you need receipts from IRS-qualified charities for donations over $250. Non-cash items like household goods, cars, and boats can also be deducted if itemized properly.
What documentation do I need for claiming charitable donations?
To claim charitable donations, you need receipts for any contributions over $250 from IRS-qualified charities. For non-cash donations, you’ll need to determine and document the fair market value of the items. Ensure you itemize these deductions on your tax return.
What are the benefits of contributing to a Health Savings Account (HSA)?
Contributions to an HSA are tax-deductible, and funds used for qualified medical expenses are tax-free. Unused money in an HSA rolls over to the next year, allowing you to build a reserve for future medical costs. Check your balance and consider increasing contributions to maximize benefits.
How do retirement contributions affect my taxable income?
Contributions to retirement accounts, such as IRAs and 401(k)s, reduce your taxable income, potentially lowering your tax bill or increasing your refund. For 401(k) contributions, ensure they are made by December 31 to take advantage of employer matching and year-end benefits.
When should I make contributions to my IRA or 401(k) to benefit my taxes?
IRA contributions for the previous year can be made until the tax-filing deadline. However, 401(k) contributions should be made by December 31 to take advantage of employer matching and reduce your taxable income for the current year. Consult with your accountant for specific deadlines and strategies.
Everyone has probably had an experience with a boss or co-worker that micromanages. They’re the ones that are constantly checking over your shoulder, re-doing tasks you’ve already done, or taking over projects that they had previously delegated. The negative vibes that go along with this management style are vast, so why does it keep appearing in the workforce?
Our guess is that either micromanagers haven’t explored alternative approaches to getting things done, or that they’re so personally invested in their business (i.e. small business owners who have everything on the line and who are incredibly passionate about the product and/or services they provide) that its hard to step back and appropriately direct that energy.
So how do you flip micromanagement approaches on their head and come out with a win/win? We’ve got a few ideas.
Micromanage Information Not People
It’s true, that as the business owner or boss you need to be on top of things. You’re incredibly invested in the success of your business, which means that you need to understand what’s going on at every level. But being in the thick of things on a daily basis, not only aggravates employees, it also goes against the reason you hired additional employees in the first place – so that you could focus on other aspects of the business.
Instead of constantly being in the day-to-day workings, try checking in with managers more frequently. Ask for timelines and projections rather than the nitty gritty details and then ask for project statuses on a consistent basis. If there’s a need for those details make sure you’re asking “for understanding” rather than questioning their abilities. Being consistent in asking for information shows your managers that you’re invested in the outcomes and that you trust them to be invested as well, whereas infrequent checks implies that you’re only going to look in when you think something is going wrong.
Tip: Make sure that you use proper communication channels when checking in with employees. Going over managers’ heads never builds morale. Instead, teach the people in charge, ask to be invited to team meetings if necessary, and instill confidence in their abilities while expressing your desire to “stay in the loop” – no one ever seems to be offended if you’re “there to learn” or are “looking for more information”. And remember, asking for information too often is still micromanaging in a passive way, so consistency is key.
Micromanage Processes Rather Than Employees
Employees who say they are micromanaged often report that they feel like the boss doesn’t trust them to do his or her job. It’s a valid feeling and probably one you can relate to – you started your own business because you had a great idea and wanted to do your thing, rather than work for someone else. Encourage that same mindset among the employees you hire by micromanaging processes rather than your employees in two steps.
Step 1 – Identify core processes. These are the processes that need to run a certain way because they effect the overall outcome of the business. Shipping and production methods, how you manage finances, HR practices, how often certain key meetings are held, and overall strategy fall into the core processes category. Other processes, like communication styles, how team meetings are run, and tasks you’ve delegated off to employees are not core processes. Sure they need to be done in a timely manner, and done correctly, but you hired your employees because you trusted them and their skillset.
Step 2 – Delegate. Instilling trust is easily done in this area. When there are times when new processes need to be figured out consider asking a manager to oversee it and keep you in the loop. Provide plenty of opportunities to collaborate and acknowledge skills that each employee brings to the table as you assign tasks. Also ask employees to review core processes that are under their management and ask for their input – you’d be surprised how much trust this builds with an employee and how much good you can gain by getting a new perspective.
Tip: Instead of hovering over employees, communicate an open door policy by encouraging questions and being available to advise. Make sure to address something positive so that those who work for you feel like you’re seeing the good as well as things that may need improvement. Even mentioning that you’re “seeing a lot of progress” in a certain area is a positive in many cases.
Micromanage Growth Not Goals
One of the biggest complaints about micromanaging bosses is that they require employees to handle things the same way they would, or they come in and take over altogether. There’s more than one way to do things and as a leader, you should focus on overall growth not the personal goals of employees or how they accomplish them.
The best managers and bosses can see that an employee’s achievement of goals adds to the overall growth of the business. Encourage goal setting as a company (i.e. we’re hoping to gross a certain amount in Q4, etc.) and also as an individual (i.e. Sara’s looking to expand her skill set and wants to take a course; Adam wanted to work on his communication with co-workers, etc). As a boss, your job is to ask about their plans to accomplish their goals, provide ideas if needed, and then check in on their progress from time to time.
Tip: Don’t sweat the small stuff. As a leader and owner of your business, spend your time focusing on big picture items. Let your employees handle the small stuff in any way that brings results. Meet with employees quarterly or as needed to address growth – this will allow you to see new skill sets and also help you know who might be ready for a new task or opportunity.
What other ideas do you have to keep the negative side of micromanagement at bay? What ideas will you implement?
Frequently Asked Questions (FAQs)
1. What is micromanagement and why is it problematic?
Micromanagement involves excessive oversight of employees’ work, such as redoing tasks or constantly checking progress. It’s problematic because it can undermine trust, decrease morale, and limit employees’ autonomy, leading to reduced productivity and job satisfaction.
2. How can I avoid micromanaging my employees?
To avoid micromanagement, focus on managing processes rather than people. Set clear expectations for outcomes, check in periodically, and delegate tasks effectively. Encourage employees to handle tasks in their own way while providing support and feedback as needed.
3. What are some strategies for managing information without micromanaging?
Manage information by requesting regular updates and progress reports from managers rather than detailed daily check-ins. Use these updates to stay informed about key metrics and project statuses, while trusting your team to handle the details.
4. How can I effectively delegate tasks without losing control?
Identify core processes that are critical to business outcomes and delegate tasks related to these processes. Provide clear guidelines and support, and encourage employees to review and suggest improvements. Maintain an open-door policy for questions and guidance.
5. Why is it important to focus on growth rather than micromanaging how goals are achieved?
Focusing on growth rather than micromanaging goal achievement allows employees the freedom to find their own methods and solutions. This approach fosters innovation, boosts morale, and helps employees develop their skills, ultimately contributing to overall business success.
Every small business owner wears dozens of different hats. One of those includes the hat of accountant and bookkeeper. Here at Vyde we help dozens of small business owners build their businesses, because we appreciate the passion they have for their clients and their product and/or services they provide. Because we spend a lot of time with “the books” and because we’re certified CPAs we’re sharing our top year end tips that will help guide you to a successful tax season.
You can watch the complete webinar where we cover our top tips, or read the summary below. We’ve put in start times for each section so you can watch the webinar in it’s entirety or just listen to the year-end tips you’re most interested in. Here are a few things we look for while working on our client’s books and things we think you should look at too:
One of the biggest questions we get asked by clients is if their unclassified or miscellaneous transactions can be an audit flag. And the simple answer to that question is yes. Unclassified or miscellaneous transactions are simply those that aren’t categorized or tagged with additional information. Simply put, you’re bookkeeper or accountant isn’t sure what the money was spent on because there’s not enough information to identify it. It’s not bad to have these transactions, but for our client’s books we try to keep this category to $3,000 or less. Obviously, this rule is scalable. If your total revenue is significantly larger, then the amount you have in this category could be more than $3,000. That said, it’s probable that large expenditures, especially those that aren’t categorized clearly, are going to run the risk of throwing an audit flag.
TIP: take a look at your unclassified or miscellaneous transactions. Review your books or bank statements now and identify as many of them as you can. If you do your own books, make notes and gather receipts for these or provide them to your accountant or bookkeeper. Working on this before year-end is easier than trying to remember right before the tax deadline and already working/spending for another year.
Loans
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Loans are treated differently than general income. Because of this, it’s crucial that you note when loan money comes into your account and notify your bookkeeper/accountant about all loans. Loans aren’t taxable income, and it’s important to make sure the interest expense is broken out from the principal payment, so you’re sure you’re getting all the deductions you deserve come tax time. The reason we suggest this as a year-end “to-do” is because it’s easy to gather the information at that time, with your year-end loan statement.
TIP: Many banks send out paper forms for year-end statements and others are completely paperless. Regardless, find out where you can access your year-end loan statement for all of your current loans and put them together in one place. You may even want to pass these off to your bookkeeper or accountant if you have one, or hold a short meeting to make sure they’re up to date on the specifics of your loans.
Equity
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If you’re been in business for very long, or even if you haven’t, you’ve probably heard the advice to keep your business and personal accounts separate. It’s a great rule to follow, but it’s not always as easy to implement. Plus, there is always the action of pulling a salary or paying yourself from your business that falls into the grey area of this rule of thumb. Your accountant or bookkeeper will probably use words like owner’s distributions or owner’s draws – simply put, the money that falls into this area includes when you write yourself a paycheck, transfer money to your personal account from your business account or even make personal transactions with your business account or business card. You’ll want to listen to the webinar where we outline this fully and talk about putting money into your business, which falls under owner’s contributions.
TIP: because this is a detailed process, we’d highly recommend watching this section of the webinar or asking your accountant or bookkeeper about it directly. If you know that you’ve purchased personal items/services from your business account, take a few minutes to write them down and included exact dates and numbers if possible. This will make searching your bank statements easier for either you or your accountant.
Health Insurance
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Health insurance is something that’s highly specific because of the variety of plans but also because the rules are written just a bit differently by the IRS. What you pay for health insurance shows up differently than a normal expense on your tax return, and filing is different based on the type of business entity you run.
TIP: take a few minutes and make sure you know the type of business entity you run, plus the forms you’ll need to file for it. Then make sure you’re including what you pay for health insurance correctly by reading through the IRS rules or reviewing this information with your accountant or bookkeeper. Year-end is a great time to ask questions and make changes if needed, because it’s open enrollment.
Hopefully you’ve gleaned a few great tips to help you finish the year strong. If you have additional questions, we’d love to chat with you.
FAQs for Year-End Tax Tips for Small Business:
Are unclassified transactions a potential audit flag?
Yes, unclassified transactions can raise red flags during audits. It’s advisable to categorize them properly, aiming to keep this category to $3,000 or less, facilitating easier tax preparation.
How should small business owners handle loans for tax purposes?
Loans aren’t taxable income, but it’s essential to segregate interest expenses from principal payments. Collect year-end loan statements and ensure your accountant or bookkeeper is aware of all loans for accurate tax reporting.
What does managing equity entail for small business owners?
Maintaining separate business and personal accounts is crucial. Properly categorize owner’s distributions or draws, including salaries and personal transactions, to avoid complications during tax filing.
How does health insurance impact taxes for small businesses?
Health insurance expenses have specific tax treatment, varying by business entity and IRS regulations. Ensure proper filing and documentation, consulting with your accountant or bookkeeper for clarity.
Why is year-end an opportune time for tax-related inquiries and adjustments?
Year-end allows for review and preparation before tax deadlines. It’s an ideal period for clarifying tax rules, gathering necessary documentation, and making strategic adjustments for optimal tax management.
Pay it forward. It’s good for the soul and for those you help. But did you think that by volunteering you’d get payback as well? It might not come in the form of dollar and cents, but lending a helping hand can actually save you money by providing you with tax write offs. Here’s a few questions that might get you thinking about the volunteer work you do and if it can do more than just give you the warm fuzzies.
Do you travel to volunteer?
If so, you’re in luck. The following items can be used as deductions come tax time as long as you’ve kept a log and/or have receipts:
Tolls, parking fees, or money spent on Uber, train, or city bus fares (keep receipts)
Log the number of miles you drive while volunteering
If your volunteer efforts require a lengthy trip you can also include airfare, living accommodations and the cost of meals.
Do you wear a uniform?
If you’re required to wear jeans and t-shirt that doesn’t hit the mark, because you can wear it for everyday use. However, if you’re required to wear a hard hat, or some type or uniform that you wouldn’t just wear to work in the yard or to the mall, then it meets the requirement.
What do you spend money on when you volunteer?
Do you make calls asking for donations or to set up board meetings for your organization? If so you can count the minutes on the phone towards a deduction. But if your plan provides unlimited minutes, no deduction can be made because it wasn’t an added expense. Other ways that you might spend money to volunteer might include mailing out packages of information, creating fliers, or purchasing space at a job fair or bazaar to get the word out about your volunteer opportunity. This one is a little bit more detailed, but if you’re wondering whether it counts or not, make a note and then ask your accountant about it the next time you meet.
Do you make donations?
If you have clothing, furniture, toys or other household items that are still good but that you don’t use anymore, consider donating them. Charitable thrift stores are glad to get used goods and you can use organizing your home and closet as a way to procure a tax writeoff. There’s no need to have original receipts for any of the items, the tax deduction is calculated off of the current value of the items. Just remember to ask for a receipt when you drop your used items off at your donation site.
Making a cash donation is just as effective for both those in need and your bottom line. All you need is a canceled check, bank statement, or a receipt from the receiving charity. If you’re attending a charity event, make sure that any benefits you receive (dinner, entertainment, golf tournament etc.) are deducted from the total amount you donated.
Not everything can be counted as a deduction. Here are a few to keep in mind:
Not all nonprofit organizations are created equal. They may do good work, but they also have to meet the qualifications of the IRS for it to be a deduction for you. Double check the the charity before you donate by searching for them on the IRS website.
Giving blood is a great way to help, but there’s no tax deduction here – you just get to feel good about saving a life.
If you purchase supplies to do volunteer work, the cost of those items can be counted as a deduction. The number of hours you spent volunteering (or the wages you’d have made if you’d put those hours in at work) don’t count.
Have questions about your volunteer efforts and if they qualify? Want to talk to an accounting professional about your taxes, possible writeoffs and keeping your business in tip top shape?
Are you hoping that the shoebox of receipts, bank statements and other random papers in your closet is enough documentation for your taxes? There is always a lot of confusion around what important documents need to be kept for taxes. We’re here to help you keep what you need and throw away the rest. Our quick guide will help you determine what’s important for your personal and business taxes. We even have a few storage method suggestions because heaven help you if anything happens to that shoebox!
Important Documents for Personal Taxes
There are quite a few documents you’ll want to save for your personal taxes. The top of the list is going to include statements that you get on a regular basis.
Bank Statements
Credit Card Statements
Mortgage Statements
Investment Statements
You’ll get most of these on a monthly or quarterly basis – don’t throw these out! Keep them because you’ll want them when it comes time to prepare your taxes. Most of these can be obtained electronically. This is a great option if you’re prone to losing random pieces of paper, which, let’s be honest, who isn’t. Download those statements and save them in a file on your computer and then you will know where they are come tax season.
Next, you’ll want to keep track of how you spent money that could be tax deductible.
Charitable Donations
IRA Contributions
Health Care Costs
Life Insurance Payments
You should keep receipts or statements regarding these expenses to help your accountant find the most deductions for you.
Finally, you’ll want to hold onto any important documents that show you had a major life event.
Marriage Certificate
Divorce Papers
Birth Certificate for children
Home Purchase Documents
All of these are significant life events that can change your tax bill. Make sure you let your accountant know about them so they can file your taxes correctly.
Important Documents for Business Taxes
Business taxes also require documentation for any tax deductions you wish to take. You’ll need to save basic documents, just like you did for your personal taxes.
Bank Statements
Credit Card Statements
Bills
These are all important for your tax returns, so save them in a safe place in your office.
Next, you’ll want to make sure you save receipts for things you plan to take a deduction on.
Travel Expenses
Business Meals
Gifts
Giveaway Purchases
Transportations Costs
Petty Cash Receipts
Advertising Costs
Office Supplies
All of these are tax-deductible, but you need to be able to prove that you used them for business. It’s really helpful to make a note of what the receipt was for. For instance, if you took a client out to lunch, then you could make a note of the client’s name and what you discussed. A great way to do this is to tape the receipt to a piece of paper and write what you did on the paper. Then scan the paper into your computer and file it away so you have it when it’s time to do your taxes.
Finally, you’ll want to keep track of these expenses that are specific to businesses.
Payroll Records
Asset Records
Property Costs (Rent or Mortgage)
These are all very important for business taxes because they can help keep your tax bill lower. The assets can roll over from year to year, so make sure you keep your records up to date.
How Long Do I Need to Keep Important Documents For?
We recommend keeping your important records for a minimum of three years. The IRS requires that you keep records for at least three years after the due date of the tax return or the date you filed the tax return, whichever is later. The period of limitations to file an amendment is three years; however, the IRS can audit you up to six years later.
You can either bookmark (or pin) this post, The Important Documents You’ll Want to Save to Prepare Your Taxes, so you know what you’ll need when it comes time to prepare your taxes.
Salon Accounting: Top 5 Accounting Tips for Hair Stylists & Salon Owners
As a stylist, you’re the expert when it comes to knowing what tools to use when and whether or not bangs works for your client. However, when it comes to salon accounting and taxes - like for hair stylists, barber shops and salons - we’ve got the expert status covered.
To make things simple, we’ve pulled together some of our best advice for keeping things organized and keeping your accounting on point.
Top 5 Tips for Setting up the Record-keeping Side of Your Biz:
Get your books set up before you open up shop. There’s no need to worry if you’ve already booked a slew of clients or have a thriving business – just start now if you haven’t already. You can always take care of past tracking at a later point, but for now, just start. Our best advice is to keep it simple, and have it be something that’s fairly easy to complete on a routine basis.
Create a ledger. It doesn’t have to be expensive accounting software, or even a fancy spreadsheet. It could be as simple as a small notebook where you jot down all the financial stuff for your business. Pick whatever works best for you. Just remember that some kind of record keeping is better than none at all.
Keep track of receipts. Especially when you pay cash! Purchase a expandable file folder, grab an envelope or go digital (some clients scan receipts, or snap pictures of them with their phone and store them in a digital folder). If you have a credit card/bank account for your business (you should!) you can even annotate the monthly bank statements and keep them in the same place as your receipts. Just make sure to keep that paper trail!
Keep your business & personal accounts separate. We mentioned this briefly in #3, but it goes without saying that keeping things separate, keeps things simple. By having your personal and business assets (and expenditures) in different places you make paying taxes, paying yourself, and putting money back into the business so much easier.
Set a plan and stick to it. There’s a reason that we’ve mentioned making things simple from the start. That’s because running the business-side of any business takes consistent effort and when it’s confusing or technical, it’s all the less appealing to sit down and stay on top of it. We suggest keeping track of things monthly or even bi-monthly if your client base is fairly large. When things are kept up to date, it takes a lot less time to manage the money.
TIP: Wondering what all goes into that ledger we mentioned in #2? We thought you might ask, so here’s what we tell our clients:
Start with recording the current balance of your business account (make sure to add a date to this line and every line you insert into your ledger)
Keep track of the revenue ($$ coming in) – cash or card payments for services or products. Don’t forget tips, especially those paid in cash!
Make a list of expenses ($$ going out) – purchasing products for your clients, rental fees for your booth or building, tools of the trade, etc.
Put a star next to any expenses that are recurring – rent, utilities, insurance and product purchases. This way you’ll be able to keep tabs on the average you spend each month and get a better idea of what it takes to run your business.
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FAQs about Setting Up Accounting for Hair Stylists and Salons:
1. Do I need to set up accounting before opening my salon?
Yes, it’s essential to have your books set up before opening your salon. Start now if you haven’t already. Keeping it simple and consistent is key.
2. What’s the simplest way to keep track of finances for my salon?
Create a ledger. It can be a basic notebook or a digital folder. Any form of record-keeping is better than none at all.
3. How should I manage receipts for my salon expenses?
Keep track of receipts, especially cash purchases, using an expandable file folder, envelopes, or digitally. Annotate monthly bank statements for credit card transactions.
4. Why is it important to keep personal and business accounts separate?
Separating personal and business accounts simplifies tax filing, paying yourself, and reinvesting in your salon. It also helps maintain financial clarity.
5. How often should I update my salon’s financial records?
Aim to track finances monthly or bi-monthly, especially if your client base is large. Consistent updates make managing money much easier and less time-consuming.
