7 bookkeeping tips for small business owners
September 18, 2019
Many small business owners see bookkeeping as a necessary evil. Yes, of course, everybody knows that accounting is an absolutely unavoidable side effect of business management. But jotting down numbers into columns, deciphering months-old receipts, and wondering how $15,000 was mysteriously misplaced is nobody’s favorite pastime.
However, bookkeeping doesn’t have to be that way. True, it may never be your favorite Monday morning business administration activity. But with a few tricks, like the right mindset and great tools, you’ll find bookkeeping much easier and less time-consuming than you may have thought.
Quick and simple bookkeeping tricks
Separate personal and business accounts
While it seems easier not to open a new bank account when starting your small business, it really isn’t. Sure, one less trip to the bank is as tempting as ever, but in the long run, both your business and personal finances will suffer.
With a single bank account, it’s much harder to separate your personal and small business banking needs. Why? Because you’d have to know the purpose of every single purchase you make. This doesn’t sound too bad at first. If you file your receipts every day, each purchase would still be fresh in your mind.
But what if you don’t have time for it for a few days? Would you remember a week later? And what if your family members use the same account? Asking your spouse what they spent $2.54 on day after day after day may put a strain on the relationship.
Having separate personal and business accounts provides a clear distinction between your family and business finances. This helps you keep track of your business expenses, and makes your life easier come tax season.
Are you the type of person who shoves invoices and receipts into the “deal with this later” drawer of your desk? If yes, rest assured, about 99% of humanity would do the same in a heartbeat. People usually want to avoid, or at least postpone, dealing with unpleasant tasks.
Unfortunately, you can’t do this with your business finances. If you follow this approach, a mole hill becomes a mountain in no time.
Instead, tackle your bookkeeping right away. Create separate folders for your receipts and invoices, and organize them into a system that makes the most sense for you. For example, you can create folders for “sales expenses,” “bank statements” “balance sheets,” and so on.
If you don’t like keeping lots of paper around, you can scan all hard copies and save them in an electronic format. Just make sure you backup your files regularly and keep all copies organized. Doing a little work each day can save you from doing a lot of work later on.
Monitor cash flow
One of the most important financial barometers of your business is your cash flow. And yet it’s also one of the most elusive figures. Why?
If you look at your books, you may be deceived by a bulging accounts receivable folder. Many people are due to pay you a lot of money. That’s great. But will they actually do so?
If your incoming payments are due later (or are simply late) than your outgoing transactions, you’re in trouble. And since bad cash flow is a significant contributor to small business struggles, it’s important to monitor your cash flow as closely as possible.
Check the deadlines of your incoming payments regularly and compare them to your outgoing ones. Contact business partners who are late paying you and find out what’s causing the delay, and when you can expect your money. Make sure you use a fast and safe payment method to avoid losing valuable time due to slow bank wires.
Does the thought of jotting down numbers into a dusty ledger gives you carpal tunnel syndrome? Relax, this isn’t the 19th century. Where there’s a will, there’s a tool.
Or, bookkeeping software.
In fact, there’s a vast array of small business accounting software you can choose from. Many, like QuickBooks and Xero offer packages geared toward specific small business needs and integrate well with other business platforms, like payments, HR, and reporting.
Automating your bookkeeping process saves your business time, effort, and money. Gone are the days of manually copying information from ledger to ledger, or even software platform to software platform. Choose platforms that work well together and that free up valuable time you can spend on essential business development.
Schedule regular bookkeeping checkups
Automating goes hand in hand with regular maintenance. Until you find a mind-reading software that completes your to-do list while you’re surfing Netflix, it’s important you schedule regular accounting checkups to keep on top of your finances. Dive deep into your books and find out what’s really going on beneath the surface.
Depending on your industry, the frequency of checkups may vary, but for most businesses, a quarterly checkup would be sufficient. This would allow you to detect trends like declining or stagnating sales, an increasingly unreliable supplier, and shifting market needs.
These regular checkups allow you to catch any issue before it becomes a serious problem, and to modify your actions (e.g. sales, production, cash flow maintenance, etc.) to better fit any changing needs.
Plan for tax season
For many of us, tax season feels like the nightmare after Christmas. While not thinking about it sounds like the best plan for most of the year, this is the approach that can land small business owners in heaps of stress and last-minute scrambling for lost receipts.
Just like with day-to-day bookkeeping, a little bit of time devoted to tax preparation each month goes a long way come tax season. Plan ahead and earmark expenses eligible for tax credits, set aside funds to cover taxes to be paid, and stay on top of your deadlines.
Little actions like this can help you save time, money, not to mention stress when January rolls around and it’s time to face the IRS (or hopefully, only their forms).
Ask for help
It’s okay to feel overwhelmed by all of this. Unless you’re a finance pro, accounting, bookkeeping, and taxes can seem like a daunting task to any small business owner (or anyone for that matter).
If you need advice, or feel like you can’t cope with this on your own, don’t hesitate to contact a professional. Accounting or bookkeeping services can include anything from advice to preparing financial reports, tax returns, or even day-to-day management of your books.
Remember that bookkeeping isn’t something everyone is equally good at. If you feel like your time would be better spent with other tasks like business development or looking for small business grants, reach out to a professional and outsource your accounting.
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