When you start a small business, everything comes out of your pocket. Your small business bookkeeping efforts struggle to separate personal from professional expenses because you don't have a business income, so it's hard to decide what funds belong to the business itself. You even dutifully enter all expenditures into the Outright's small business accounting software to track your cash flow, but one problem continues to be difficult: dealing with cash and personal small business finances.
You need to keep a handle on what cash you spend on what business expenses because all those expenses are deductable. But you also need to keep track of the actual receipts for each expense, since there's no online or digital record of the purchase like what you'd have when paying with a check or credit card. This can lead to a significant filing burden, but works out well when coordinated with your small business bookkeeping strategy.
Two types of small businesses have the most trouble with cash problems: those without any separate business accounts, and those with a separate business checking account and credit card, but only a personal ATM card. Both scenarios result in business owners needing cash for a business expense like parking at a meeting or training event, withdrawing cash from the personal account at the ATM, and then needing to track and record the payment. If you have separate checking accounts, after this event you'd need to transfer cash from the business account to the personal account to cover the withdrawal that paid for the expense, and then record both that transaction and the parking expense correctly on your small business bookkeeping tool.
And in either case, just a few minutes of forgetfulness or a lost receipt are enough to make it very difficult to claim the appropriate business deduction. This is why it's important to have a strategy for managing and using cash, and then recording the expense, regardless of how small the business is. The best thing to do is create a set of boundaries between personal and business finances. Even if you only have one checking account, you can take out a fixed amount each week or month and keep that in a "petty cash" envelop, always carrying some of it with you. This gives you a place to keep receipts before filing and helps maintains a clear separation of business expenses and personal expenses.
However, you implement this separation, it's important to include a strategy for tracking expenses, saving receipts, and recording everything with a small business bookkeeping tool. Despite the extra work this creates, it will help keep business finances clear, accurate, and useful.
Small Business Bookkeeping Gets Complicated When Using Personal Finances and Cash to Make Business Purchases, Unless You Know What to Do. Learn More at http://www.outright.com
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