Here are a few tips to clean up your financials and get organized.
1. Talk to a CPA
Now’s the perfect time to make an appointment with your tax advisor, as you’ll both have more time to discuss your financials and will be focused on long-term strategy, rather than getting through this year’s tax season. Most importantly, you’ll still have plenty of time to act on his or her suggestions while it’s still 2012.
2. Re-evaluate Your Business Entity
Many small businesses start out as sole proprietorships or partnerships, but then eventually transition to another entity as they grow. For example, if your business is not incorporated, you may want to consider incorporating (or forming an LLC) to shelter you from some financial risk and possibly save money on taxes.
Sometimes an entity is formed with one income target in mind, and you might need to reconsider the entity for a different income level. Failing to adjust your business entity for your revenue can be a costly mistake. Discuss the different legal entities with your CPA, so you can determine the right entity for your situation and the right time to make the change.
3. Separate Business and Personal Finances
If you haven’t done so already, take the steps to keep your personal finances and expenses separate from those of your business. This is mandatory if your business is an LLC or Corporation, but it’s good practice for sole proprietors as well. This means a few things:
- Open a business credit card: While I normally don’t recommend opening any new credit lines, in this case it’s a smart idea. By putting all your business expenses on the business card, you’ve got an instant audit trail of your year’s expenses when tax time rolls around again. Of course, you should be saving merchant receipts as well.
- Open a business checking/savings account: If you’re operating as an LLC or Corp, your business needs to have its own checking account. If you’re a sole proprietor, you’re able to use your own personal checking account. However, consider opening a dedicated savings account or money market account where you can transfer approximately 25% for each check or payment received as your own personal tax withholdings. This strategy will make it far less painful when it’s time to pay your self-employment and small business taxes.
Read more: mashable