Welcome to the eighth installment of the Top 10 Tips for Financial Success blog series, where we hit the books to better manage your books!
Whether you’re a small business or a solopreneur, these 10 tips are vital to your bottom line!
Tip Number 8 Be Honest! (With yourself and the IRS)
We’ve all heard the adage, “Honesty is the best policy,” but what does that mean when it comes to your business? Living by the numbers and being honest with what they represent. Here’s how:
Track your income
Many business owners are paid as contractors, not employees, and therefore receive 1099’s from clients for their work. You do not want to rely on those 1099’s at the end of the year to state your income. You want to have some sort of tracking system to know precisely every dime that comes into your life that is income, and you want to record it.
My advice? Use QuickBooks. Record your income via paid invoices and save time, money (and your sanity!) later on. If you receive a cash payment, deposit it right away, then document and reconcile it to an invoice. Know your numbers and live by them.
Manage your expenses
It’s great to see all that money coming in, but how are you managing what’s going out? Your costs matter as much as your income, and you need to be as honest with spending as you are with earning.
Here’s an example of how not being honest with expenses can impact your business:
A client came to me, stressed out and worried, and launched into our meeting with, “You know I’m in debt, and I’m struggling to get out of it. I don’t know what to do! I just started my business, and I thought I was doing so well. Now I’m in bigger debt.”
When I looked out the window, it didn’t take long to see (part of) the problem. A brand new $45,000 car that she just bought. Here was a brand new business owner who was doing great on the income side but not brand-new-car kind of great. She wasn’t living within her means.
Don’t buy the big fancy car, unless you are making the big fancy money. Be honest with yourself.
I know what you’re thinking. “But I’m not buying a big fancy car, Beth! How does this apply to me?”
Okay, let me ask you: what’s your business credit card balance? Part of building up credit means paying the balance each month. If you’re not doing that, you need to take a long hard look at your expenses and determine what you truly need. Otherwise, you’re not living within your means, and you’re not being honest with yourself.
Be honest with the IRS
Now, if you are tracking your income and expenses and managing your books monthly, then being honest with the IRS should be a piece of cake.
But for those of you in the service industry who receive tips for services, I’m here with the reminder:
Tips count as income, and you have to track them as well.
Sorry to be a party-pooper, but if you are somebody that makes tips, you have to track them. Put them into your QuickBooks, deposit them into your business only account, and account for it.
You know who you are: waitstaff, massage therapists, cleaning companies, and other service providers who count tips as income for services, I see you! If you’re not marking any tips on your income taxes, you need to come clean. We all know the professions who earn tips (and “we” includes the IRS). You don’t want to get caught later on, because that’s when it gets expensive. Unclaimed income will cost you fines, late fees, interest charges. Pay now or owe later.
The Bottom Line
As hokey as it may sound, honesty is the best policy when it comes to your business. Manage your income and your expenses, and live by your numbers. Keeping it real with yourself, your bookkeeper, your accountant, and ultimately, the IRS will save you time and money later.
At Beth Blaney & Associates, our top concern is providing small businesses and solopreneurs freedom from the number-crunching and office work that pulls them from their fields of expertise. We are dedicated to helping and empowering business owners!