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What is accounting?
The concept of “accounting” refers to how a business records, processes, organizes, and understands its financial information. Following these accounting tips for single member LLCs helps you properly track income and expenses, and have a clearer picture of your business’s financial position and financial health. It lets us know if we’re making a profit, tells us about our company’s assets and liabilities, it can even help with getting loans and other outside funding. And it helps us identify which parts of our business are actually making money, any gaps in our business or our services, and ways to expand or add new revenue. But more importantly, as a single-member LLC, good accounting practices are a vital part of protecting your personal liability.
Here are a few of the top accounting tips for single-member LLCs.
Separate bank accounts for business and personal.
Do not — I repeat — DO NOT use your personal checking or savings accounts to pay for business expenses, receive payments from customers, or for your business’s income. Number one, for accounting reasons, of course. If we’re trying to track business deductions and keep an eye on our business expenses, how much we’re spending on what, and be able to track all of this stuff, it’s going to be immensely easier if we know, okay, this account is all business stuff.
Aside from the accounting reasons, this is an absolute must if you are operating your business as a single-member LLC. Separating your personal assets from your business assets, including your business bank accounts, credit card accounts and other expense financial accounts is the number one thing that you can do as a single-member LLC to avoid piercing the corporate veil and having your personal assets up for grabs due to a liability or debt from the business.
Speaking of banking options, we are HUGE fans of Lili. Lili is redesigning the banking game, specifically with freelancers and solo business owners in mind. They offer a free checking account for sole proprietorships and single-member LLCs with no minimum balance requirements, no hidden fees, fee-free ATM withdrawals at thousands of locations, mobile check deposit and a visa business debit card with cashback rewards. Because Lili only works with solo business owners, they offer a ton of other great features that you won’t find with other traditional banking options.
Especially if you are new to business or you can’t afford to outsource this to a bookkeeper or another accounting professional, you’ll need to set up some easy and effective way to manage your business’s expenses and finances. The best way to do this is to take advantage of some accounting program or accounting software.
There are a lot of us who may use an Excel spreadsheet or maybe even a handwritten letter. Fine, that’s better than nothing, I guess. But much better would be an accounting program or accounting software. Ideally, we want to be able to keep all of our financial stuff in one place, so we can keep things organized and have one spot to go if we wanna see exactly what’s going on with our business.
Again, this is why I love Lili. Because with Lili, you’re not just getting any old business checking account, you’re getting a checking account plus tax optimizer tools and accounting software all in one. From invoicing, payments, expenses, and receipts you can manage it all from the Lili mobile banking app. You can connect Lili to your favorite payment apps like Venmo, PayPal, and Cash App to transfer money into your Lili account in seconds. Connect your online platforms like Shopify and Uber and set up direct deposit to receive your money up to two days earlier. You can even connect your Lili account to your external bank accounts so you can manage all of your money and finances in one place.
Get and stay organized.
We don’t want to be surprised, caught off guard or unprepared for anything. Even if your accounting platform or software tracks all of your expenses, we are still going to want to save our receipts. This is gonna be helpful for taxes, of course, if we need to double-check what an expense was or what it was for. But organization is also going to help in the case of an audit. If the IRS comes a-knockin’, wants to see proof of our business deductions or expenses, we’re gonna want to have those receipts available and easily retrievable so we can give them to the IRS, get this thing over and done with.
And please do not just throw all of your receipts into a box. The point here is getting organized. The point here is ease and efficiency and streamlining things and organization. So scan those receipts so you can safely store and relocate them later, or use a receipt scanner tool like the one that Lili offers. You simply snap or upload an image of the receipt, then attach the receipt to the corresponding transaction, then throw that paper receipt in the trash or the recycling bin. It will be safely stored in the Lili mobile banking app and never again will you have to wonder, where did I put those receipts?
Plan and save for taxes.
Good accounting practices include tracking your financial big picture, and it also means planning for taxes. It’s important to track and categorize all of your business expenses and deductible expenses, so you can take full advantage of your tax write-offs. This is so easy to do with Lili’s Write-Off Tracker.
And let’s not get surprised or caught off guard by a big tax bill that we didn’t know is coming. Putting money aside on a regular basis to save for taxes is the way to avoid that from happening. Lili’s tax bucket makes this easy by automatically setting aside a percentage of income for taxes. They will even help you determine how much to set aside. We already talked about saving receipts and how Lili’s receipt scanner makes this super easy to do. This is gonna be helpful when you’re filing taxes so we can double-check what an expense was. And again, it’s also going to be necessary in the event of an audit.
Monitor your financial health.
We’ve been tracking our expenses, categorizing things, and keeping good record of all of our business expenses. Again, this is about being able to see the financial big picture of our business.
Lili will automatically generate your quarterly and annual business expense reports so you always know where your business stands and can easily monitor your spending habits. If you’ve done the work all year tracking and categorizing your business’s revenue and expenses, Lili will pre-fill your 1040 Schedule C form so you can easily hand it over to your accountant or file it with the IRS. All you have to worry about is making sure everything is properly tracked in the Lili app, and they will do the hard work for you and generate those reports and even your Schedule C.
Save for growth and emergencies.
We want to make sure we are prepared in case of an emergency or some unexpected expenses come up. But we also wanna make sure we’re prepared to invest or reinvest in our business’s growth. If there is some training program that might help us improve our services, or some platform or software, a program that will greatly streamline our processes. We wanna be able to save up money so we can reinvest and grow the business.
The best way to do this is to treat it like you do your taxes. Set aside little amounts, but do it regularly and consistently, and automated if possible. So you don’t even have to think about it. You don’t have to click a button, it’s automatically done. Lili lets you put your savings on autopilot with their automated savings tool. Save for a rainy day or even a really sunny day by setting up an automatic transfer of at least $1 per day to your emergency savings bucket.
Whether you’re doing it yourself or outsourcing to a professional, it is important to put into place and maintain good accounting practices so we can easily track our revenue and expenses and have a clearer picture of our business’s financial position. Without it, we never know if we’re making a profit or if we have good cash flow. It’s gonna be really tough to get any kind of loans, funding, or outside investments. Tax time is gonna be a huge pain in the butt. And we’ll never know if we’re actually making money or if we’re missing out on other potential streams of revenue.
If you’re a sole proprietor, freelancer, or single-member LLC that’s looking for a tool that will give you work-life balance in one account, it really doesn’t get any better than Lili. Get started today and open your free account with Lili in less than three minutes.