Until owners takes steps to organize business finances, they exist in limbo, uncertain of whether to capture opportunities that arise or buy needed equipment or inventory.

Here at LendSpark, we see too many business owners who can’t tell us what their expenses or cost of goods were for the previous year. Some still use old fashioned ledgers, prone to mistakes; others come in with a box full of papers that are completely out of chronological order.

If you’re wincing in recognition right now, know that you can take the typically quiet January to make a permanent change in your financial habits. The benefits of remaining organized run from being able to negotiate for better deals from vendors to applying more easily for a business loan to setting an IRS auditor straight by having concrete documentation at your fingertips. The greatest advantage, however, in organizing business finances is the daily peace of mind and clarity to make informed decisions that fuel your growth.

As the new year begins, make your way through these seven ways to organize and optimize your business finances so that you can have your best year yet!

1. Go through all paperwork and toss out/shred any unnecessary clutter

Many business owners let their finances get out of control because tackling the job just seems too overwhelming. Therefore, take an easy first step: discard all unnecessary items. Throw away or shred everything you meant to read, every note from a client (unless it’s praise; in that case ask for a testimonial) and any receipt you cannot claim. With this done, dedicate one to two hours per week filing paperwork and shredding unnecessary pieces.

2. Create a hard copy or digital filing system

Use either physical file drawers and manila folders with tabs or a digital scanning and software system for all receipts and invoices. Create a file by month for each, January 2017, February 2017, etc. If you aren’t sure which paperwork you may or may not need, just scan it and keep an electronic record also filed per month/year.

woman working to organize business finances

3. Be clear on whether you/your staff are employees or contractors

The EDD (Employment Development Department) is cracking down on business that claim to hire independent contractors because those businesses don’t have to pay such expenses as federal, state, and local income tax, unemployment insurance, workers’ compensation, overtime and minimum wages, work-related expenses or unpaid sick and vacation pay. The IRS won’t hesitate to impose fines, fees and the back taxes/fees on amounts paid to these individuals.

An independent contractor is really an employee when:

  • The business owner determines where and how the work is done. The employer sets the hours and provides the equipment to complete the job.
  • The worker doesn’t have the time or freedom to work for other businesses.
  • The work done by the individual is key to the success and persistence of the business.
  • The work has an indefinite end date. Contractors and freelancers typically work on a per job basis. When the contract is finished they no longer work for the business owner.

Don’t lose your hard-won profits to IRS fees, fines and back taxes. Make any freelancer who has become an integral part of your business into an honest employee.

4. Invest in the digital accounting tools available today

QuickBooks, Simply Accounting, Peachtree make life a whole lot easier. We hear you: no time. Hire an intern from your local college on a short-term basis to get it all up and running for you and then show you step by step how to do everything. You should also purchase a receipt management scanner (these are also available as apps for your smartphone, i.e., Neat Receipts). Even the IRS now uses electronic copies of receipts.

5. Consider outsourcing to a bookkeeping service

If you don’t want to do your books yourself at all, you can save money by outsourcing the management of income and expenses, assets and liabilities for a fraction of the cost of even a part-time controller. Some bookkeeping services can be found for even $99/month. Compare this to the average salary of paying a full-time bookkeeper $45,000/year, and you can see the value in outsourcing to manage your funds effectively.

6. Let your CPA organize business finances!

CPAs work hard to maximize your income and minimize tax bills. More than tax preparers, however, CPAs encourage their clients to engage in tax planning. This can include preparing financial statements that show you how much you’re making and what you’re spending. Plus, a CPA can also represent you in an IRS audit. A CPA prepares easy-to-understand tax and financial analysis for you and suggests helpful tax decisions for your company’s growth. Most business owners find outsourcing the details of their incomes and outflows to another brain—and a more qualified one at that—a huge relief.

7. Don’t use your business credit card for personal expenses

You must maintain separate business and personal expenses. Otherwise, when tax season arrives, your records will be confusing, disorganized, and likely to be audited. The best way to overcome this is to only use one credit card for all business expenses, and another separate credit card for your personal use.

Make 2017 the year you know exactly where every dollar goes. If you’re considering a business loan, the lender will want current, audited financial statements. To stay current on the trends in small business borrowing, sign up for our email newsletter or connect with us on on LinkedIn, Facebook or Twitter.