Starting a new business comes with many challenges but it’s also an exciting endeavor. When it comes to transaction etiquette like how you handle financial exchange, it’s important to keep document transactions properly, and keep personal and business expenses separate.
Fortunately, you can adopt best practices, even if you initially skipped over important financial practices. By keeping organized financial records, you can avoid costly mistakes and take full advantage of financial opportunities. Continue reading to learn more about why these practices matter and how they make a significant difference for your business.
Why Transaction Etiquette is Important
Keeping Organized Financial Records
Mixing personal and business finances often leads to unnecessary complications. For instance, using an app like Zelle to receive service payments and pay for personal expenses can blur the distinction between personal and business transactions. As a result, it’s difficult to track your business expenses accurately and understand how well your business is performing. In fact, getting a picture of your financial health becomes challenging when your income and business transactions are not aligned, leading to improper decision-making.
Minimizing Non-Compliance Risks
Poor record-keeping can quickly become a legal liability. For example, not keeping organized financial records of transactions like all cash deposits received can raise red flags during a tax audit. If a customer pays $300 in cash but only $250 is deposited into the business account, it may appear as though income is being underreported, which could trigger an audit.
Taking Advantage of Tax Deductions
Maintaining organized records ensures you don’t miss out on eligible deductions, such as the enhanced business meal deduction. This deduction allows businesses to deduct the full cost of business-related food and beverages purchased from a restaurant. This can be for immediate on-premises or off-premises consumption. Otherwise, the limit is usually 50% of the cost of the meal. For example, a meal purchased from a restaurant may qualify as a deductible business expense, whereas prepackaged food from grocery stores or convenient stores for personal dining does not qualify as a business expense. Inadequate documentation may lead to potential mistakes that incurring penalties or missed opportunities for deductions.
Avoiding Common Transaction Errors
Mixing Business and Personal Finances
Problem: Using the same payment app (i.e., Zelle or Venmo) or bank account for personal and business transactions makes tracking nearly impossible.
The Fix: Open a separate bank account and payment platform specifically for your business. Many apps now offer accounts tailored for businesses, helping you maintain clean records.
Using Vague Labels
Problem: Not adding clear descriptions to transactions creates confusion. For example, if a payment is labeled with an emoji or a vague term, it becomes unclear whether it was for a client meeting, a supply purchase, or something personal. By keeping organized financial records and transaction leaves little doubt as to what a transaction was meant to be.
The Fix: Use precise labels, such as “Client Meeting Lunch” or “Invoice #842 Payment.” This ensures your records are accurate and easily understandable.
Cash Handling Mistakes
Problem: Failing to deposit all cash collected can result in discrepancies and potential compliance issues.
The Fix: Deposit the full amount of cash received into your business account and reconcile it promptly to match your records.
Best Practices for Transaction Management
Develop a Clear Policy
Create a simple policy that outlines how income and expenses should be managed. If you have a team, ensure they are trained in these procedures.
Utilize Accounting Tools
Using software like QuickBooks to simplify the tracking and categorizing of expenses. Detailed descriptions should always accompany each transaction for clarity.
Match Sales to Deposits
Make sure every deposit in your account matches the corresponding sales figures. For example, if you have earned $800 through PayPal, the same amount should appear in your business account.
Consult Financial Experts Early
Don’t wait until reporting/tax season to seek help. An accountant can help you set up your accounts, handle cash, and implement effective financial practices.
How Our Team Can Assist You
At The Ray Group, we provide specialized accounting and advisory services for businesses of all sizes. Our team can help with:
- Suggest and integrate tools to simplify your financial workflows.
- Verify your financial records are accurate, organized, and meet all tax compliance standards.
- Create customized transaction guidelines that align with your operations.
- Establish separate accounts and payment methods specifically for your business.
We assist in helping you keep organized financial records and transactions by turning chaotic accounting practices into a well-ruined system so you can concentrate on scaling your business.
Good transaction practices amount to more than tidy bookkeeping. They set the stage for your business’s success. By separating personal and business expenses, documenting transactions clearly, and staying on top of reconciliations, you’ll gain valuable financial insights, avoid compliance headaches, and take full advantage of tax-saving opportunities.
If you need assistance getting started, contact us. We’re here to help create a system that supports your long-term success.
