Salon Banking – 10 Helpful Tips
Small business accounting for your salon can seem like a daunting task, especially if cash flow is tight and you don’t think you can afford professional help. Here are 10 simple tips to help you keep track of your money and avoid being caught unprepared at tax time:
- Open a separate bank account for your salon. This will help distinguish between personal and business transactions and make tax filing less complicated.
- Organization is key. Consider a large binder, divided by months, to keep bank statements, receipts and deposit slips. This makes for easy referencing and will protect you in an audit.
- Avoid using cash. Cash is difficult to account for, track, and prove if the IRS wants documentation of what was purchased. My recommendation? Use business checks or your business debit card to make purchases. For example, If your Landlord ever says that you have missed a rent payment, it’s easier to look back through your bank statements than to search through receipts, if you remembered to get one in the first place.
- Save Receipts. Make sure you save all receipts! Let’s say you go to Costco and purchase ink, a garbage can and broom for your salon. Unless you have a receipt itemizing the business charges, the IRS may think you are purchasing personal items. It’s not enough to use a debit card or check to pay for purchases, you’ll need an itemized receipt as well.
- Record Deposits Correctly. Take a minute to notate on a deposit slip what checks are being deposited and the dollar amounts. Typically there are a myriad of deposits that happen within a business checking account: loans, personal transfers, income from services, income from product sales, etc. If the deposits are accidentally treated as income when they were actually a loan or a transfer from a personal account, you may pay taxes on more money than you made.
- Home Deductions. If you work from home, keep records of your personal expenses, you may be able to deduct a percentage of them as business expenses. These may include rent/mortgage payments, utilities, cell phones, paper, ink, etc.
- Keep a Mileage Log. If you want to deduct mileage on your tax return the IRS requires documentation. You cannot count miles driven to the primary work location, but miles driven from your first work location to a second work location are tax deductible. Consider a phone app to help keep track of miles.
- Don’t Use Credit Cards. Having credit available can be a lifesaver in an emergency, but according to a study by Dunn and Bradstreet (the #1 credit reporting bureau for businesses), credit card users spend 15-‐18% more when using credit instead of cash. Early last decade when McDonald’s began accepting credit cards, they found the average transaction rose from $4.50 to $7.00.
Bottom line? If you are using credit to earn a 1-‐5% reward you are still overspending! If you are using credit to earn airline miles, Consumer Reports stated 75% of airlines miles are never redeemed. In addition, CardTrak reported 60% of people don’t pay off credit cards every month. So not only will you be overspending, you will most likely be paying interest on those charges! My recommendation, avoid using credit cards if at all possible.
- Save I recommend setting aside 20% of every dollar earned (gross amount) into your business savings account for taxes and future unforeseen expenses. This helps ensure you have money to pay Uncle Sam and avoid unforgiving government penalties and fees for missed or late tax payments. This money will also help you avoid using debt for future expenses. In addition, keep at least enough cash in your business checking account to cover one months worth of operating expenses (rent, supplies, anything that is a regular expense, etc). This will help you avoid bank overdrafts, insufficient fund fees, and save you in case cash flow slows for any reason.
- Easier to remember now. Go over your accounts at least on a monthly basis, making notes on bank statements, attaching corresponding deposit slips and receipts and filing them in your tax binder.
Many small business wait until the end of the tax year to organize their financial documents, and by then, are unable to remember many details. This hurried, generalized accounting can result in errors and lost tax deductions.
If you follow these 10 simple guidelines for small business accounting for your salon, your year end tasks will be less daunting, you will maximize possible tax deductions, and you will be better prepared to meet tax and other financial obligations.
Jennifer Groberg is a graduate from the University of Utah with a bachelors degree in Finance. She owns her own firm, BookSmarts Accounting, and is a certified QuickBooks Pro Advisor. Jenny’s expertise lies in small business accounting, bookkeeping, QuickBooks consulting, QuickBooks training & cleanup and financial advising.
For small business and salon accounting needs contact Jenny Groberg at(801) 979-9676 or email her at firstname.lastname@example.org.