Bookkeeping is one of the most important tasks that every business needs to master. If you despise bookkeeping, it might be best to let bookkeeping professionals help you out. When we relegate bookkeeping to an afterthought or don’t pay it the respect it deserves, we’re likely to make costly mistakes, even find ourselves in a full-blown disaster. To help you avoid such an outcome, here are 5 ways to save your business from bookkeeping disaster.
1. Maintain and Organize Receipts
One of the worst mistakes you can make is failing to maintain and organize receipts and invoices. Some businesses fail to dedicate time to keeping these records in order. It may take extra time each day, but this is time well-spent. Plus, several apps and accounting software programs allow you to enter invoices and receipts, take pictures of them or scan them in so your software can organize them for you.
While remaining disorganized with your receipts won’t always lead to disaster, you risk costly errors, IRS scrutiny, poor money management, a lack of knowledge of where your money is going, and a loss of confidence from your customers and business partners.
Additionally, neglecting these records makes IRS audits a nightmare, as you spend hours just trying to locate the right receipts and provide accurate records to the auditor.
2. Separate Personal and Business Expenses
The next thing you need to consider to save your business from a bookkeeping disaster is to separate personal and business expenses. When you’re in a hurry, it’s easy to pull out the wrong debit or credit card. Similarly, you might find yourself in a situation where your personal account has more money or available credit than your business account. This may be a temptation.
Mixing your personal and business expenses makes sorting everything out a cumbersome and time-consuming process. When everything is jumbled together, it’s easy to miss certain business expenses or think that some personal expenditures are really for your business.There is no need for you to mix up your finances when you can easily separate the two by taking the right steps.
Something else to remember while we’re on the subject is to make sure that you’re compensating yourself for running the business. Avoid simply putting these funds back into the company every month. While this seems right, you need to maintain a healthy life and save for retirement. Set aside the proper amount of money every month for personal use and personal investment.
Planning for your future is just as important as running your business. Plan for future needs today and consider taking up life insurance. Put together a financial plan that prioritizes both business and personal finances. Some great strategies that you can adopt for personal financial management are mentioned below.
Separate your business financial records and your personal assets.
Manage your personal and business debt separately.
Select the right financial and legal structure for your business.
Diversify income streams to avoid having to take money out of your business.
Keep personal and business debt separate.
3. Using the Right Accounting Software
If you want to prevent a bookkeeping disaster, what you need to do is use the right accounting software. There is a lot that you need to think about when selecting a bookkeeping tool. Each program offers a range of features that often cater to certain kinds of businesses more than others. Decide what features you need and go with a trusted program that incorporates these benefits.
Go through your options. You need to understand that cheap or free does not always mean good. You want your software to be a helper, not a hindrance. If you don’t really know what you need, a bookkeeper can help you decide. The right bookkeeping tool will help you stay on top of all payments and manage invoices, income and debts effectively.
In fact, the latest tools even allow you to send a reminder to your clients to ensure that they clear their dues and payments on time. In addition to this, the software should also offer payment options and offer a wide range of financial reports. Here are some of the best software tools that you should keep in mind when choosing one for your business.
QuickBooks Online
MYOB
Gusto (a Taxation tool)
Expensify (For Expense tracking)
SOS Inventory (For Inventory tracking)
Xero (A Financial Accounting Software)
Bright Pay (A Payroll Management Tool)
Approve.com (COS and spend management)
Plan Guru (For Financial Planning and Budgeting)
Fresh Books (For Billing and Payment Processing)
Although it is important that you use software or cloud-based programs to manage your books, you still need to have a paper trail for legal purposes. You’ll need to either save all paper receipts and invoices or have images and electronic copies that can be printed at a moment’s notice.
4. Neglecting Employee Records
Another wise choice is maintaining detailed employee records to avoid mistakes. When payday comes, you have to pay your employees properly for their work. However, a failure to maintain employee records could cause a great deal of trouble. You could end up underpaying or overpaying your workers. You can mess up their deductions, or damage their finances by having them under the wrong employment designation.
On top of this, you could fail to pay taxes on time and risk penalties and audits. Moreover, your employees will get frustrated with you if you’re not managing their records correctly.
5. Prepare for Emergencies
Preparing for emergencies is crucial if you want to avoid bookkeeping issues. It doesn’t matter how optimistic you might be as unforeseen events like natural disasters, pandemics, fires, equipment failure, and break-ins can occur anytime. In order to protect your company from significant losses, you have to create a plan and stick to it. The following tips will help you prepare for an emergency and allow you to bounce back in no time.
Assess business vulnerabilities and weaknesses to a natural disaster such as an earthquake, flood, hurricane or fire.
Employ a multi-layered cybersecurity plan
Develop a recovery roadmap to help guide you in case of an emergency.
Prepare a disaster recovery plan.
Check with the small business association to find out if you can get a loan to pay off replacement and repair costs.
Backup your data on both physical media and cloud storage services
Make sure you have enough insurance in place to cover major events.
Create an emergency fund which you can use to pay for necessary repairs.
Look at hardship loans and grants for additional assistance.
Stick to a firm budget each month, both personally and in business, to make sure you always have money saved to deal with surprises.
Conclusion
Bookkeeping disasters occur because of poor planning, poor organization, a lack of professional help, a lack of transparency, and using the wrong tools. Bookkeeping disasters aren’t small hiccups in your workflow. They affect everything you’ve worked to build. You risk a poor standing with the IRS. You can violate laws, lose income, quality talent and customer loyalty, and miss opportunities for investment, expansion, and innovation.
Take your finances seriously. Design a comprehensive bookkeeping plan and follow it everyday. And for greater support, partner with an experienced bookkeeping service provider to organize and manage your books.
Sound Accounts is your all-in-one bookkeeping partner. We help business owners make sense of their finances, improve efficiency, and find success. Contact us today to learn more.
To learn more about bookkeeping, check out our frequently asked questions below.
FAQ
How can outsourced bookkeeping services save my business?
There are a number of benefits to partnering with a bookkeeping service provider. Some of these include:
Easy Planning: They can ensure that you have access to all necessary financial records and financial statements, keep them organized, and conduct meetings with you to go over key points in your financial statements. This will allow you to plan for the future.
The Details: Great bookkeepers are famous for being detail-oriented. They tend not to miss things that other people do. You can count on them to keep track of every aspect of your books and keep you informed.
Ensure Compliance: With bookkeeping services, you get to remain compliant, avoid penalties and unnecessary audits.
Improve Relations: Their services will improve your relations with investors, employees, business partners, the IRS and lenders.
Why is it important to keep your business and personal finances separate?
Mixing your personal and business expenditures is a quick way to get in trouble. You can miss making timely payments, miss out on money-saving deductions, make errors in tax reporting, risk an audit, and not have an accurate picture of your finances.
What are the responsibilities of a bookkeeper?
A bookkeeper performs data entry, manages cash flow, tracks income and expenses, maintains financial records, handles payroll management, and prepares you for tax season and abide by all tax rules. In addition to this, they also pay invoices, file tax returns, clarify your financial situation, and partner with you to help you make the most of your available income. This way, you’ll be able to focus on business operations instead of worrying so much about bookkeeping.
