Mica's Money Advice

Accounting for Sole Traders: 4 Tips to Stay on Top of Your Small Business Accounting

Solopreneurship is one of the most fulfilling paths that you can take. Whether you've decided to work for yourself or are just getting started with your small business, being a sole trader comes with a lot of freedom. Additionally, there are no employees, and this means you don't need additional expenses such as salaries and employee insurance. However, the freedom that comes with solopreneurship can adversely affect your business accounting. Therefore, as you get started, take note of the following tips to help you stay on top of your accounting.

Get a business account and credit card

Never merge your business with your personal accounts. Doing so not only makes it hard to track expenses, but it can also be the beginning of your new firm's downfall. Open a business account where you will channel all monies related to the business. Setting up this type of account helps separate your personal and business affairs. Additionally, it also allows you to get a business credit card that you can use to grow your firm's credit and acquire loans.

Track business expenses diligently

Solopreneurship often makes it hard to keep track of business expenses. Since you're working alone, you may forget to record receipts for future accounting purposes. One way of avoiding this is by adopting a cloud-based solution for accounting and bookkeeping. When you receive receipts, you can key them into the software immediately. This ensures that no paper receipts fall through the cracks. For maximum efficiency, get a software solution that's compatible with your mobile phone to ensure easy recording.

Develop an accurate invoicing system

Just like your expense receipts, invoices require proper tracking and recording. If you don't invoice your customers, you won't get paid. If you don't have a system for determining when invoices are due, you may end up getting paid late, and this can adversely affect your business cash flow. Therefore, develop an accurate and efficient invoicing system to protect your small business from cash flow problems and bad debt. Cloud-based accounting software can come in handy for this purpose.

Know Your Tax Obligations

Once you have developed a reliable system for your expenses and invoices, the next step is to understand your tax obligations. Sole entrepreneurship doesn't come with burdening tax obligations. For example, you are required to pay the same income tax rate as an individual. However, you may have to file for Goods and Service tax if your annual turnover is more than $75,000. Maintain accurate accounting records to avoid tax compliance issues.

If you're a sole trader, you must set up a system that allows for accurate accounting. To learn more, a small business accountant can help.