To understand what small businesses owners can do to address the current situation and its inherent complexities, Oxygen Banking has set out some important steps small business owners can take to ensure their finances are in prime shape in a detailed report.
Analyzing the data, and extracting some of the information, provides the following points of interest:
Separate Your Business from Personal Finances
One of the easiest ways to get into trouble with the tax authorities is not separating your business and personal expenses. It is important for your accountant to do your taxes correctly. If you use one account for both you risk commingling funds and not accurately tracking deductible expenses. For this reason, we recommend looking at a business bank account to ensure you are best positioned to file your business taxes, maximize business deductions, and remain on good footing with the government.
Keep Your Financials Organized
Make a habit of going through receipts weekly or bi-weekly. Many finance houses now have embedded banking solutions allow you to take a photo at purchase, upload to the app and categorize.
According to the Wall Street Journal, 27 percent of businesses said they were not able to receive the funding they needed. This is even worse for sole proprietors, who often don’t formally operate a business bank account and thus have no business credit established. Many found out the hard way during the first round of government lending during the coronavirus pandemic when they had difficulty obtaining these loans as they weren’t formally operating as businesses and/ or didn’t have the right paperwork (e.g. invoicing, detailed receipts, quarterly tax receipts). The best time to seek credit is when you don’t need it, so that you have the option when you do.
The benefits of incorporating your business are many, including reputational, legal and financial. Another good reason to incorporate is credibility. Many clients will only work with incorporated entities. There are also potential tax benefits.
Small Business Insurance
General liability insurance is important for many businesses. Some professions need proof of insurance to secure a permit or license. Additionally, some contracts will require showing general liability coverage prior to awarding the work.
Even if not required, a general liability policy helps show prospective clients that you are a legitimate business, again bringing credibility. Accidents do happen, so you should make sure you are protecting those involved. No matter what it is you do, general liability can help protect you from the financial consequences of a third-party accident.