4 Accounting Realities Every Entrepreneur Should Know

Poor bookkeeping can end an otherwise thriving business. It can set a project back, or set a business up for an IRS audit. If the IRS comes knocking, it’s important to have all of your accounting neat, organized and clearly laid out for the examiner. Otherwise, you may find yourself paying hefty fines and losing valuable time while you defend your company.

Keep Your Receipts Organized

According to Entrepreneur.com, many Americans often refuse receipts when given the option. However, small business owners are the exception to this rule. A small business owner must get into the habit of organizing everything, and keeping every receipt that relates to their business. But the reason that business owners keep receipts isn’t so that they can turn them in to their accountant at the end of the year. Rather, receipts are kept to provide documentation of every expense in case of an IRS audit.

Keep Records for Six Years

Anyone who keeps receipts know that the ink can fade in time. Scanning your receipts and keeping them in a folder in case the IRS comes to your door is a great strategy for keeping records. The IRS does allow businesses to scan receipts. Better yet, you can write a note on the receipt about the business purpose for the receipt, and then take a picture of the receipt with your phone. Then, send the file to a special receipt-only email address, and you won’t ever have to worry about organizing your receipts by time and date. The email program will organize and document everything for you. Prevent junk email by setting up a filter to only allow emails from your email address.

Loans Fill the Gaps

When your business starts to show signs of growth, it is a crucial point in your company’s life. If you don’t grow your business, you may find that your growth turns to stagnation. One simple rule of business is that expansion should occur within the first three to five years. If you’re not expanding, you’re doing something wrong. Commercial services offered by companies like PenFinancial Credit Union can help a company determine their current stage. Look for a partner to provide your company with advice, loans and products to grow your business.

Cash is Not King

Good luck explaining to the IRS that you pay for everything in cash. Even if you have a receipt, paying for items in cash is a great way to make the IRS suspicious of your business. While it’s perfectly legal to pay for business expenses in cash, the reality is that it puts your business at risk, and anything that puts your business at risk should be avoided at all costs.
Remember to keep organized, plan your business’ growth, and avoid calling unnecessary attention to your business by making large cash purchases. Businesses that follow these steps will discover they have more time to develop their relationships with customers, and spend less time worrying about the day-to-day operations.