Every successful small business knows the importance of financial management. If you want to get ahead and avoid unnecessary issues, you have to focus on bookkeeping. There is no need for you to be afraid of it. In fact, it is easier than you think. No matter whether you have experience in accounts or not, there are some basic bookkeeping tips that you should know. In our post, we’ll cover these tips to help ensure that you can create an accurate accounting system. So, without further delay, let’s dive right in.

1. Keep Personal and Business Finances Separate

One of the most important bookkeeping tips that small business owners should know is keeping personal and business finances separate. The last thing you want is to mix things up for yourself. Every business transaction should flow through your business account. There should be no room for personal transactions. Similarly, you should not use your personal bank account to pay for business expenses.

No matter how small your business might be, it is highly recommended that you keep your personal and business bank accounts separate. When you eliminate personal transactions from the business account, you will have an easier time categorizing and reconciling transactions and making sense of financial statements. This will ensure you don’t make any mistakes.

Besides, it can be difficult to sort through your personal transactions since you are likely to forget the nature of every transaction. This could result in several errors and you would be unable to get an accurate picture of your finances. Therefore, you have to keep both of your accounts separate. It is also important that you do the same for your credit cards.

2. Draw a Salary

Another bookkeeping tip that will make it a lot easier for you to manage everything is paying yourself a salary. Generally, owners of S corporations (S-corps) and C corporations (C-corps) tend to pay themselves a salary and include the entries in their payroll system. Even if you are a self-employed owner, it is a good idea to pay yourself a salary every month. It will ensure your consistent income and help you not under or overpay yourself. 

When you pay yourself a salary, you get to reinforce the notion that you and your business are separate. It also reduces the possibility of withdrawing money when the business needs it the most. Besides, you don’t want to rely on your business bank account to pay your personal expenses. Drawing a salary on a monthly basis will prevent undue problems from occurring. It is worth keeping in mind that it is a lot easier to record a salary than to account for personal transactions.

3. Get Reimbursed for Business Expenses

If you pay for business expenses out of your personal bank account, you should reimburse yourself. No matter how much effort you put into running your business, there will be times when you will need to pay for expenses out of your pocket. Although it is perfectly fine for you to help your business out in difficult times, it is crucial that you pay yourself back. After all, your personal funds need to remain protected.

The fact is that all business expenses should be paid by the business bank account. All you have to do to reimburse yourself is write a check to yourself and deposit it in your personal account. It will ensure that you have sufficient personal funds for other transactions. Keep in mind that this check should be separate from the monthly salary and be accounted for in your bookkeeping process under the appropriate business expenditure category. 

The process of reimbursing yourself for expenses must be the same as the one adopted by your workers. You will just need to list the expenses and their purpose on the spreadsheet. Make sure to include the receipts as well. Although it might seem like a hassle to write a check to yourself, it will simplify business bookkeeping and ensure that all your data is accurate.

4. Monitor Business Mileage

In addition to the above, you also have to keep track of business mileage so you can reimburse yourself. You just need to determine a standard rate for each mile driven. Then, you should be able to calculate the total value of the miles driven and write yourself a check. Keep an eye on the dates and miles driven. You will also have to ensure that the purpose of the trip was business and not personal. The process of reimbursement is rather straightforward.

Business owners can even rely on software to track their mileage automatically using their smartphones. It makes the entire process a lot easier. Besides, you are unlikely to want to perform the entries manually. There are plenty of mileage tracker apps that you can use to get the job done. In fact, you can easily categorize your trips and even plan routes as well as maintain timesheets.

Now, you must avoid paying for personal trips, as it is not the responsibility of your business to pay for your personal expenses. This is why you have to monitor every trip you take. Since mileage expenses are tax deductible, you have to record them.

5. Keep All Your Receipts

If there is one bookkeeping tip that you should never forget, it is to keep all your receipts. You don’t want to lose them as it would make it difficult for you to keep accurate financial records or to claim expenses properly. The IRS has made it clear that you need to provide receipts for each tax deduction. In the past, it was common for businesses to have a file folder for every vendor and keep receipts in it. Today, you can simply scan the receipts and upload them on the bookkeeping software. It will make things a lot easier for you and streamline your accounting process.

6. Send Invoices Within 2 Days

An important bookkeeping tip that you need to follow is sending invoices within 48 hours. Once your product or service has been delivered, it is crucial that you create an invoice and send it to the intended customer. Consumers are more likely to clear their dues when they are sent an invoice quickly. As the transaction will be fresh in their minds, they would have no trouble making the payment.

Electronic invoicing has made things both easier and quicker. You should be able to send an invoice within 48 hours when you use an accounting software application. It will also allow you to keep track of your accounts receivable and improve your business cash flow. The fact is that bookkeeping would be incomplete without invoicing. 

7. Send Payment Reminders

Lastly, you also have to send a payment reminder to each customer who has failed to clear their dues. It is the only way you can keep your business running. Otherwise, you would struggle to improve your cash flow. When a customer misses a deadline, you need to reach out to them and let them know that their invoice is due. In addition to sending a payment reminder by email, you should also give them a call for swift results. Don’t wait too long to let your customers know that they have missed clearing their dues as it will encourage them to avoid making a payment.

However, you must make sure that you are not too aggressive, as this will only make matters worse for you. Also, you might want to send collection letters for collecting payment. A collection letter can serve as evidence in case you decide to take legal action against someone.

8. Automate Where You Can

Skip doing everything manually. Save time and keep better records by using automated functions on your cloud-based bookkeeping software. Manage your business banking online and sync these two so that business transactions and purchases automatically update from your bank to your bookkeeping software. 

9. Do a Quarterly Review

When you reach the end of each quarter, take a close look at your accounting and bookkeeping reports and records. Look for patterns, year-over-year changes, seasons of rising or declining revenue and sales, unpaid invoices and much more. Stepping back and looking at long-term patterns as well as looking closely for previously missed issues can help you make better financial decisions and grow your business more effectively. 

Conclusion

These tips should help you improve your bookkeeping practices. There is much more to learn about financial reports, income statements, expense tracking, business credit cards, business accounting software and other accounting tools, keeping accurate records, managing operating expenses and much more. Yet, as a busy business owner, these practices will help you refine your bookkeeping strategy and improve your financial situation.

Although you can tackle bookkeeping on your own, it is often a great idea to outsource the work so that you can focus on running the show. You don’t want to get too caught up and lose track of the things that matter most. Having an expert take on the work would ensure that everything remains in order and you can go on leading your organization. 

Sound Accounts brings relief, productivity, organization, and peace of mind to companies of all sizes, with individually tailored bookkeeping services and sound financial advice. Connect with us today to learn more about the difference Sound Accounts can make for your business. 

Also, don’t miss out on 6 months of QuickBooks free, for qualified new customers, plus other great bonuses. Contact us today. 

To learn more about business bookkeeping, check out our frequently asked questions below.

FAQ

What are 4 important activities in bookkeeping?

When it comes to bookkeeping, you need to analyze financial transactions, write journal entries, post entries, and adjust entries at the end of the period to ensure that everything is in order. There are many more key bookkeeping activities but these are always important. 

How should a small business organize their bookkeeping?

Small businesses often benefit from outsourcing their bookkeeping process to ensure they benefit from the best service. In-house bookkeepers are an excellent resource and a great choice but with outsourcing you get all the benefits without having to pay a full salary, benefits, set up a dedicated office, purchase new technology, and more.

Can I manage my own bookkeeping for my business?

Even though you can take on the bookkeeping process on your own, you should let a professional handle the work for you. There are many intricacies within bookkeeping practices. It is easy to make mistakes and get fined by the IRS. Also, bookkeeping takes a lot of time and will pull you away from other management activities essential to your organization’s growth.