Yesterday, I wrote about cash flow. And, that it’s the lifeblood of a business. And, if you’re a solopreneur- it’s pretty much the only thing which fuels your business.
But, the problem is that solopreneurs are ridiculously bad at tracking their finances. And, then complain bitterly when they have to pay their taxes- because they have no records of deductible expenses, operational costs and decisions, and the like. It’s why the Adjuvancy offers services for our solopreneur clients to create financial records on a monthly basis. All we need is the bank records, check and deposit records, credit card bills- anything upon which they spend money. Because bookkeeping is an historical record- it provides no information about the future of the business. Your budget (you do have one, right?) is about the future and the current situation; that’s why it needs to be tracked, too.
But, if you are tracking your finances yourself, you need to do the following:
- Number each invoice (you need to retain a copy of each invoice), record the date of payment, and the check number (or credit card information) for how you were paid.
- Record the date, business purpose, vendor name, and amount for each expense that is related to your business. (Copies of the actual source documents are expected to be kept- the IRS believes that period should be 7 years.) The main reason to keep these extra records is so that you can always prove where your income came from, and show that your expenses were valid business expenses (for example if you’re claiming them as deductions on your tax return, and the tax authorities demand proof).
- Before you pay anybody for things they do for you, you need to decide if they are an employee or a contractor. If they’re an employee, they need to complete a W-4 (for tax withholding), and an I-9 (and you need a copy of their required source documents to substantiate their legality), and probably an emergency telephone number. If they are to be contractors, a W-9 is required- which provides you their social security (for an individual) or Federal Employer Identification Number (FEIN, for businesses).
- If you use your car for business, then you need to record the date and mileage of your usage. You probably should track the costs (gas, service, oil, tires, insurance), so you can discern if it is better to use the IRS mileage rate or the pro-rated portion of your expenses. (The former is usually better when the car is new and under warranty; the latter when it is older and repairs will be expensive.)
- You can use a physical file system, an Excel spread sheet (with references for the attachments- those are the actual documents), or if there is no inventory, we vote for Quicken Home and Business or Xero (a web-based) bookkeeping systems. Both of these last two are easy to use and great to prepare financial reports- and also provide systems to invoice your customers/clients (and track their payments).
These practices should help you run your business, bill your clients, collect what folks owe you, and satisfy the tax authorities. (This last aspect is crucial!)
Feel free to contact us to help you grow your bottom line and determine ways to grow, maintain cash flow, and thrive.