Home Based Business: 7 Steps For Keeping Financial Records And Bookkeeping
In the excitement of starting a home-based business there's a temptation to overlook setting up a system for keeping good financial records and bookkeeping is not a consideration.
Many people treat their home-based business rather like a hobby, and get excited when they start earning a few dollars.
When working at home, it seems so easy not to treat your business seriously until it becomes "big enough".
The question then arises: "At what stage do you decide your business should treated as a serious business?" Having a plan at the start of any business will help you make decisions to determine the future direction that you will aim for, including an exit strategy.
Having a cash flow budget will be a big help in the process, and will often be necessary to secure any finance that you may need to stimulate the growth of your business.
In any business there will be start-up costs, and so every purchase that you make, whether by credit card, check or cash should be recorded.
At the outset you may simply using a notebook and pencil, or even a spreadsheet on your computer.
As you start making sales or generating income, it's a good idea to keep track of that money too.
Even if you have no idea of how to do any bookkeeping or keeping records of the transactions in your business, here are seven simple steps to follow: 1) Have a bank account just for your business.
This may seem an unnecessary option to pay bank fees for an account for a business that's just starting up.
The costs are running costs for your business and should be claimed against any profit your business makes.
By keeping all your business transactions in one account rather than mixing them with personal expenses you will find it easier to determine if your home-based business is profitable or merely an expensive hobby.
2) Separate your business and personal expenses.
When making a purchase, ensure that you have legitimate business expenses in a separate transaction from personal expenses.
For instance if your purchase fuel from a gas station and then buy some milk or chocolates, ask to pay in two transactions.
3) By getting into the habit of asking for a receipt for every transaction then you'll not have to worry about whether you're making a business or personal purchase.
Either way you'll have the documentation for your bookkeeping.
4) Vehicle logbook.
If you are claiming vehicle expenses, then get into the habit of writing each business trip you make in a vehicle log book - with a separate log book for each vehicle.
5) Have a filing system for your receipts and dockets.
So many tradespeople just chuck their documents into the glove box of the car.
Many receipts are on paper that turns black in the heat or fades in the light, and so when it comes time to do your bookkeeping, the receipts are illegible.
By ensuring that you put your receipts into a monthly file or an envelope in your office, at the end of the month then you can attach them to your bank statement, to give to your bookkeeper.
6) Keeping Business Records together.
Have one place to keep all your business records for each financial year.
Some people buy a "concertina" type folder and place each month's paperwork into individual pockets in the file.
Or use an A4 file with plastic sleeves to insert your receipts into.
7) Contact your tax office and ask them how long you need to keep your business records.
For example, the Australian Taxation Office requires that you keep your business records for at least five years after the tax returns have been completed.
If the tax office should conduct an audit they will need to see those records.
You should check the legal requirements for record-keeping in your state or territory.
Start by following these seven steps and as your home-based business grows you'll have an established record keeping system to keep track of your expenses and your profits.
Many people treat their home-based business rather like a hobby, and get excited when they start earning a few dollars.
When working at home, it seems so easy not to treat your business seriously until it becomes "big enough".
The question then arises: "At what stage do you decide your business should treated as a serious business?" Having a plan at the start of any business will help you make decisions to determine the future direction that you will aim for, including an exit strategy.
Having a cash flow budget will be a big help in the process, and will often be necessary to secure any finance that you may need to stimulate the growth of your business.
In any business there will be start-up costs, and so every purchase that you make, whether by credit card, check or cash should be recorded.
At the outset you may simply using a notebook and pencil, or even a spreadsheet on your computer.
As you start making sales or generating income, it's a good idea to keep track of that money too.
Even if you have no idea of how to do any bookkeeping or keeping records of the transactions in your business, here are seven simple steps to follow: 1) Have a bank account just for your business.
This may seem an unnecessary option to pay bank fees for an account for a business that's just starting up.
The costs are running costs for your business and should be claimed against any profit your business makes.
By keeping all your business transactions in one account rather than mixing them with personal expenses you will find it easier to determine if your home-based business is profitable or merely an expensive hobby.
2) Separate your business and personal expenses.
When making a purchase, ensure that you have legitimate business expenses in a separate transaction from personal expenses.
For instance if your purchase fuel from a gas station and then buy some milk or chocolates, ask to pay in two transactions.
3) By getting into the habit of asking for a receipt for every transaction then you'll not have to worry about whether you're making a business or personal purchase.
Either way you'll have the documentation for your bookkeeping.
4) Vehicle logbook.
If you are claiming vehicle expenses, then get into the habit of writing each business trip you make in a vehicle log book - with a separate log book for each vehicle.
5) Have a filing system for your receipts and dockets.
So many tradespeople just chuck their documents into the glove box of the car.
Many receipts are on paper that turns black in the heat or fades in the light, and so when it comes time to do your bookkeeping, the receipts are illegible.
By ensuring that you put your receipts into a monthly file or an envelope in your office, at the end of the month then you can attach them to your bank statement, to give to your bookkeeper.
6) Keeping Business Records together.
Have one place to keep all your business records for each financial year.
Some people buy a "concertina" type folder and place each month's paperwork into individual pockets in the file.
Or use an A4 file with plastic sleeves to insert your receipts into.
7) Contact your tax office and ask them how long you need to keep your business records.
For example, the Australian Taxation Office requires that you keep your business records for at least five years after the tax returns have been completed.
If the tax office should conduct an audit they will need to see those records.
You should check the legal requirements for record-keeping in your state or territory.
Start by following these seven steps and as your home-based business grows you'll have an established record keeping system to keep track of your expenses and your profits.
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