How will you know if your business is profitable if you aren’t tracking the income and expenses of your business? I understand it isn’t everyone’s favorite thing to do, but it is an essential step necessary to understand the health and viability of your business. So, with that in mind, we will discuss some of the top bookkeeping tips for a small business owner.
Stay organized
Whether you use a filing cabinet, or a shoe box, it is imperative that you keep your receipts organized. Even if you simply paper clip them by expense type this will help make it easier for you to enter the data into your accounting software or file your taxes.
Business and personal finances MUST remain separate
As a small business owner, you should have a separate business bank account. Not only will this save you time and energy when you are sifting through expenditures, but it will also help you keep track of income for your business. This may be difficult at first, but it will save you a lot of time and headaches in the long run.
Plan for big expenses and taxes
Budgeting for inventory, computers, repairs, maintenance, and taxes will save you a lot of worry regarding these expenses in the future. Setting aside a little money monthly will keep your cash flow steady throughout the year. This move will keep you from having to get a loan or make cutbacks at the end of the year to pay for your taxes or make necessary repairs.
Watch your accounts receivable
Sometimes clients simply forget to pay their invoices. If you are regularly keeping an eye on what your clients owe you, you will make sure your income remains regular. If you are using accounting software, you can run an accounts receivable report on a regular basis (we recommend weekly or monthly) to stay on top of amounts owed to you.
Don’t get behind on reconciliations
We are all busy. However, waiting until the end of the year to reconcile all your bank statements is far more stressful than doing them regularly. We highly recommend that you reconcile all your accounts monthly. It is easier to remember what you purchased a few weeks ago and make that correction to your accounting software than months later. Additionally, your financial reports may not be accurate if you are missing transactions or have incorrectly recorded deposits or expenses.
Review your books regularly
We recommend business owners give themselves a set time each week or month to review their books. Owners who do this have a broad overview of their business and a better understanding of their cash flow. They actively have their fingers on the pulse of their business.
Pay attention to your payables
Forgetting to pay your bills can not only affect your credit, but also your tax payments. Stay organized, pay on time, and keep your payment receipts just in case you need to prove that payment was made.
Understand cash flow
Knowing what income and expenses your business will have on a regular basis is critical. Think of your cash flow as a storage tank. We need to keep the tank full to pay our bills and meet our obligations. This is done by monitoring the cash that flows in (receivables) and the cash that flows out (payables).
Find a good adviser
Having a good adviser can be invaluable. It can be overwhelming to understand your software, the ins and outs of payroll, or how to file your quarterly taxes. A good advisor can walk you through what you need to understand, offer bookkeeping tips, and help you fix any errors you may have made.
Know when to outsource
Lastly, there may come a time when you are SO busy working on your business that you don’t have the time anymore to manage the books. This is not a failing. In fact, continuing to do the books when you don’t have the time or knowledge is far more detrimental to your business than outsourcing this task. If you feel overwhelmed with the task of keeping your books, don’t feel you understand it well enough, or have questions, call us! We would be more than happy to help so you can focus on your business!
