Maintaining your books isn’t something you should do solely as a tax-savings strategy. If done right, it can also prevent you from losing your sanity, as well as getting dragged into a potential lawsuit because you commingled your business and personal funds.
Here are five significant reasons for maintaining separate accounts and set of books for each of your businesses.
1. Corporate Veil
Maintaining a separate account substantiates the corporate veil, which is one of the primary reasons for forming a new corporation. Having a separate checkbook shows that you recognise the company as its own distinct entity. Furthermore, separate books should encourage you not to commingle personal and business funds.
2. Tax Savings
Separate banking will improve bookkeeping procedures, prevent payments from being missed and provide better records to improve your tax return. We all know that “bad books” will cost us on our tax return, so why not stop that cost from being incurred in the first place?
3. Audit Protection
In the event of an audit, having a separate account will improve your chances of passing it without consequence. Auditors will often disallow a number of expenses when personal and business expenses are commingled in a single account.
4. Less Stress and More Sanity
When your books are disorganised, you’ll feel constant stress to take care of it, and this ultimately can cause you to come undone. While having separate bookkeeping for a new company will save you time and money in the long run, consider the price and value of having a clear head. Those that rely on your decision-making process will thank you.
5. Improved Decision-Making
As alluded to above, having separate accounts starts the process of better bookkeeping, expense tracking and budgeting, which leads to quality decision making. How can you expect to be a successful business owner without accurate records? Furthermore, how can you project future success without being able to see facets of your business clearly today?
Options for Implementing an Income and Expense-Tracking System
The next step is implementing a system for tracking income and expenses. It almost goes without saying that I recommend accounting software such as QuickBooks, but it’s managing the accounting that is the other half of the battle. Here are some ideas on getting the help you need to implement your system.
Option 1: Input Items Yourself
I know this strikes fear in some of your hearts. In fact, this may be why your books currently aren’t getting done. Nonetheless, you still may want to hold off delegating any part of the process until you—yes, you—put in a few hours a week to learn the basics, like inputting figures.
Option 2: Hire a Family Member to Keep Up the Books
This is a great way to have the teenagers or young adults you’re financially supporting to financially earn their keep while teaching them entrepreneurship in the process. Even more importantly, however, they’ll learn about the heart and soul of small business by doing the books. Adding them to the payroll can also be a great tax write-off.
Option 3: Engage a Local Bookkeeper
A local bookkeeper could be a college student wanting internship/externship hours, or a seasoned bookkeeper with affordable rates. Either way, putting a bookkeeper on your books can free up your time so you can do what you know best: make money for the business.
Option 4: Hire Someone “In-House”
You’d be amazed how quickly you can find a local college student or bookkeeper wanting to pick up some part- or full-time work for an hourly wage. This person could come in daily or a few days each week to input data and print reports. You might need to provide some supervision, or you could have your outside CPA train and supervise your in-house bookkeeper.
Option 5: Use An Accountant or Tax Professional Throughout the Year
Many business owners like the comfort and security of knowing they not only have highly skilled accountants doing their books daily, but also have the benefit of one-stop shopping for tax planning and quarterly and annual reports as well. It may seem more expensive, but the value of better long-term planning and a higher quality of books can far exceed the cost of a reliable accounting professional.