| |

Why Transaction Etiquette Matters: Simple Habits That Can Transform Your Business

By Meghan Joaquin, MAFM

January 30, 2025

Starting a new business is exciting but comes with its fair share of challenges, especially when managing finances and accounting. Many business owners unintentionally skip over important financial practices, like keeping personal and business expenses separate or documenting transactions properly. These missteps can lead to missed tax opportunities, compliance issues, and unnecessary headaches.

The good news is that adopting a few simple habits can set your business up for long-term success. By maintaining proper transaction etiquette, you can avoid costly mistakes and take full advantage of financial opportunities. Here’s why these practices matter and how they can make a big difference for your business.

Why Transaction Etiquette is Important

Keeping Financial Records Clear

Blending personal and business finances can lead to unnecessary complications. For example, using an app like Venmo to receive service payments and pay for personal expenses can obscure the distinction between personal and business transactions. This lack of separation makes it difficult to track your business expenses accurately and understand how your business is performing. When your income and business transactions aren’t aligned, getting an accurate picture of your financial health becomes challenging; this can hinder your ability to make informed decisions.

Minimizing Non-Compliance Risks

Improperly managing financial transactions, such as not depositing all cash received, can raise red flags during a tax audit. For instance, if a customer pays $200 in cash but only $150 is deposited into the business account, it may appear as though income is being underreported, which could trigger an audit.

Taking Full Advantage of Tax Deductions

Maintaining organized records ensures you don’t miss out on eligible deductions, such as the meals and entertainment expense deduction. This deduction allows businesses to deduct a percentage of qualifying meal and entertainment expenses on their tax returns. For example, a meal with a client may qualify as a deductible business expense, whereas personal dining expenses would not. Inadequate documentation can result in missed opportunities for deductions or potential mistakes that may lead to penalties.

Avoiding Common Transaction Errors

Mixing Business and Personal Finances

The Problem: Using the same payment app (i.e., Venmo or Square) 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

The 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.

The Fix: Use precise labels, such as “Client Meeting Lunch” or “Invoice #456 Payment.” This ensures your records are accurate and easily understandable.

Cash Handling Mistakes

The 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 straightforward policy that outlines how income and expenses should be managed. If you have a team, ensure they are trained in these procedures.

Leverage Accounting Tools

Utilize software like QuickBooks to simplify the tracking and categorizing of expenses. Detailed descriptions should always accompany each transaction for clarity.

Match Sales to Deposits

Ensure that every deposit in your account matches the corresponding sales figures. For example, if you’ve earned $500 through Square, the same amount should appear in your business account.

Consult a Financial Expert Early

Don’t wait until reporting/tax season to seek help. An accountant can direct you in setting up your accounts, handling cash, and implementing effective financial practices.

How Our Team Can Assist You

At Grimbleby Coleman, we provide specialized accounting and advisory services for businesses of all sizes. Our team can help you:

  • Establish separate accounts and payment methods specifically for your business.
  • Create customized transaction guidelines that align with your operations.
  • Verify your financial records are accurate, organized, and meet all tax compliance standards.
  • Suggest and integrate tools to simplify your financial workflows.

We assist in turning chaotic accounting practices into a seamless, organized 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.