According to a Small Business Administration study, close to 1/3 of business that go bankrupt, do so as a result of poor financial structure.

Keeping your finances in order is therefore imperative if you want to build a strong and healthy business over time.

These six tips will help you put your best foot forward.

  1. Keep business separate from personal

The obvious benefit is that you can quickly and clearly see a snapshot of your business’s health without your personal activity muddying the waters. This separation will also save you a boatload of work organizing your finances come tax time.

If you operate as a corporation, you and your business are considered two independent legal entities and so you must keep your books free from the other’s activities.

If instead, you have selected your business to be a sole proprietorship, there is essentially no legal distinction between you and your business. For this reason, it is just as important that the two are disassociated from each other fiscally. As profits, losses, and liabilities are tied to you personally, this practice can reduce your legal liability and make your life easier in case of an IRS audit.

  1. Accurately record your deposits

Having your own business might entail that you put some of your personal money into the business. Employing a system of accounting that distinguishes these cash infusions from other deposits, such as revenue from sales or even business loans, will protect you from accidentally recording these deposits as revenue and paying taxes on the money.

  1. Stay on top of your invoices

Unless you are happy working for free, you probably want to get paid for the work you do. The inability to collect accounts receivable can even lead businesses in high demand on a path towards hardship.

Create a game plan. What actions will your company will take 30, 60 and 90 days out from an invoice due date? Use electronic tracking and automated reissuing of invoices. Assign the task of collecting overdue payments to someone in your organization.

  1. Watching your expenses

We all know the saying “you have to spend money to make money”, but you shouldn’t needlessly spend money, spend more money than you can afford, or conversely, fail to plan for investment opportunities when spending money will actually enhance your business.

Your business’s cash flow is the oxygen that it breathes. Make sure that your business can survive during normal operating conditions as well as expansion and contraction by watching how much cash you burn.

Recording your expenses has another benefit. Write-offs. As a small business owner, there are plenty of expenses that you should record for tax purposes. Business trips, meetings, car mileage, and many others should be accurately chronicled and not just casually estimated for your tax records.

  1. Set aside money for paying taxes

Unlike employees of companies who automatically get their taxes taken out of their paycheck, self-employed entrepreneurs have to do this themselves. Make sure you pay your estimated quarterly taxes to avoid owing the IRS a penalty for underpayment.

Intuit wrote a clear article with more detail on this subject here.

As doing this independently might be too confusing, intimidating, or too time-consuming, consider using a payroll service like Paychex. Sometimes it’s best to just let the professionals handle it.

  1. Hire a professional

On that note, hiring an accountant should be something you do in tandem with good bookkeeping. More than likely, a professional accountant will find more ways to help you save money than you would save in accounting fees by doing this on your own. You’ll worry less about potential penalties that you might incur as well. With clean and accurate record keeping, you will drastically reduce the billable hours for your taxes too.

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