It’s easy to assume that an online business doesn’t have to operate like a brick-and-mortar establishment regarding best practices. You might even believe everything from taxes and financial reporting to budgeting and audits is not as necessary when you’re not operating a business that people can walk into from out on the street.
However, accounting accuracy can be just as crucial for an online business. In fact, just as you would follow these accounting best practices for a traditional business, you should follow them for your online business:
Receive Expert Help
You might have launched your online business alone, but that doesn’t mean you must handle all business operations alone. Most experienced business owners would recommend that you work with a tax agent to prepare your annual business tax returns. You may also see the value of an accountant for your everyday business financial needs.
As tempting as it can be to handle financial tasks alone, it may not be in your best interest if you lack up-to-the-minute tax knowledge. You may make poor financial decisions that result in penalties or hardship.
Use Accounting Software
We’ve come a long way from paper ledgers and manual bookkeeping. This time-consuming accounting method with a high margin of error has no place in the average modern business. Instead, we use accounting software.
Any online business can benefit from accounting software to streamline processes like financial reporting, expense tracking, and invoices. For businesses wondering what does a bookkeeper do, integrating accounting software can also complement their efforts by automating routine tasks and enhancing overall efficiency. Best of all, some of the most highly regarded accounting software is cost-effective and can be used by your preferred accountant or tax agent.
Separate Your Personal and Business Finances
Many online businesses start as hobbies. Eventually, they become fully fledged small businesses, of which there are now over 33 million in the United States alone. Because they can start as nothing more than passion projects, many business owners have mixed personal and business finances. After all, separating them doesn’t always make sense when selling goods and services for fun rather than profit.
However, it can be worthwhile for many reasons, such as:
- Allowing for cleaner accounting
- Streamlining tax compliance
- Making your business appear more professional
- More straightforward business transactions
- Building business credit for business financial products
- Maximizing tax deductions
Maintain Organized Records
Record-keeping can be time-consuming, but it’s crucial for tax purposes. The IRS wants to know that everything you’re trying to claim aligns with your financial records. Otherwise, they may wonder whether you’re trying to commit fraud.
Create a system for invoices, receipts, contracts, and other financial documents. Fortunately, most accountants and accounting software programs make this easy.
Brush Up On Business Laws and Compliance
Business and tax laws are complicated. Frustratingly, they can also change frequently without you knowing. Set time aside to brush up on laws and compliance relevant to your online business. You should have an in-depth understanding of:
- Taxes
- Trademarks, patents, and copyrights
- Business Insurance
- Licenses and permits
- Customer privacy
- Inventory
- Payments and PCI compliance
Perform Regular Reporting
You might not have as many overheads as someone with a brick-and-mortar business, but that doesn’t mean you don’t have costs and income to manage. Prioritize regular reporting to understand your financial position and make informed decisions.
You might not have been familiar with accounting best practices when you first launched your online business, but now can be the right time to learn them. By prioritizing the best practices above, you may enjoy far more seamless business operations and remain in control of your financial situation.
