What is bookkeeping? This involves keeping track of the financial records of your business. It is part of the accounting process in your business. The financial records of your business consist of your income as well as your expenses. Improper financial management has been the downfall of many businesses. Proper bookkeeping can help your small business in many ways. Below are bookkeeping tips for small businesses.
1. Separate Receivable Payments from Borrowed Loans
One of the most critical errors that can be made in bookkeeping is to confuse money received from clients with borrowed funds. Apart from both being cash that the business can use for operations, they have an entirely different effect on your bottom line. This is why it is a good idea to treat them as different accounts to avoid confusion that has the potential to turn into a financial crisis. Using the accounting software that can separate the two will make keeping track of both transactions easier.
2. Treat Your Checks Like Cash
Checks have the same function as cash but some business owners still make the error of losing track of each check they write. Even your canceled checks have the potential to create serious errors in your books so it is important to document them well. The easiest way to solve this problem is to have a system in place to process and record your checks. The simple task of documenting and filing will overwhelm you if you wait for checks to pile up. Ensure you record them as you go, and it won’t cause you any problems in the future.
3. Take Control of Your Accounts Receivable
There’s nothing nicer than having a lot of sales come in, even if it’s on credit. However, the real challenge is converting credit into actual funds your business can use for its operation. If you are unable to manage your accounts receivable, then selling on credit will be more of a problem instead of an asset to your company in the form of a serious cash flow problem. Make sure to specify clear payment terms to your customers. Set strict deadlines and consider blacklisting repeat offenders if you think they are taking advantage. Chase every late payment, as each is essentially an interest-free loan.
4. Plan for Major Expenses Including Taxes
Forecasting and creating a budget for your major expenses like inventory, office supplies, and repairs and maintenance can save you a lot of worries. Setting aside a contingency for these will help ensure that your business will continue operating and will not be marred by issues that arise from lack of inventory, supplies, and equipment.
Even tax expenses can be anticipated provided you keep track of your financial records properly. Setting aside a particular amount each month corresponding to your monthly sales will make it easier for you to pay your taxes because you won’t have to outlay a large number of funds at the end of the year.
5. Use Online Banking for Your Business
It is advisable to open up a separate business bank account, in particular, one that allows for online banking. This method is more effective in monitoring the cash flow of your business, as it allows you to access information and generate reports in real time. It also makes management of bills and money transfers for expenses (i.e. payroll) easier. In addition, it is now possible to integrate your online banking platform with your accounting software, making it simpler to access a timely and reliable set of financial information.
6. Don’t Wait Until Year End to Talk to Your Accountant
Find a good advisor and make it a point to be in contact with your accountant regularly, not just at the end of the year. Doing so will make sure that any bookkeeping issue will be caught in time and will be easier to work out. Even though accounting software can enable practically anyone to monitor their business financials, having a good accountant as an advisor is valuable as they are able to give you sound opinions beyond setting up an accounting system. Your accountant should be able to help you with setting up your business from the start – creating an effective business structure, obtaining necessary permits and licenses (if required), setting up payroll, and even filing taxes.
7. Take Advantage of Small Business Tax Credits & Deductions
There are a number of small business tax benefits available to you as long as you maintain the proper records. Things like health care tax credits, auto expense deductions, charitable contribution deductions, and even software expense deductions are some of the possible benefits your business outfit can qualify for. This is one reason why proper bookkeeping practices are essential; they will help you get the most out of tax credits and deductions. Be sure to ask a tax professional to advise you on which ones you can file for.
8. Leave an Audit Trail
An audit trail is a system that allows for a quick retracing of transactions in your business. This means that apart from meticulous recording, you will also observe a logical order when handling documents on a day to day basis. If you keep your invoices and checks in numeric order, not skipping checks or invoice numbers, as well as store your financial documents by date, you should be able to easily reconstruct your company’s finances going back one year or more. By leaving an audit trail, you’ll also minimize most of the issues that businesses encounter during audit and tax filing.
9. Petty Cash Receipts are Important
More often than not, petty cash transactions are not monitored because they deal with small, day to day cash transactions. However, they are highly susceptible to the risk of theft. When left unchecked, missing small amounts can turn into a large headache. Therefore, it’s important that these transactions be well recorded and documented each time you dip into petty cash. This is one of the best bookkeeping tips that you can get if you are determined to keep track of the company’s day to day expenses. It is also a good idea to reconcile your petty cash account on a daily basis to quickly spot any inconsistencies and discourage theft.
10. Use the Appropriate Accounting Method
Before you can even start recording the simplest transaction, one of the first decisions you need to make is which accounting method you should be using for your business. Cash basis accounting means you record revenues when cash actually changes hands. It is a simple approach using a single entry system that doesn’t need complex bookkeeping practices, but this is only ideal where transactions are on a strict cash basis.
Accrual accounting on the other hand records transaction based on when money is supposed to change hands. It’s a more complex method that requires some time to learn but accurately keeps track of all transactions and how it affects your company’s assets, liabilities, and income.
11. Keep Track of Your Financial Data on Monthly Basis
It’s important to keep track year over year and based on the month so you can evaluate seasonality, anticipated trajectory, and growth. If you track monthly based on the category of income, it can help you see what areas of your business are increasing, which are decreasing, and areas for potential improvement. You may also find areas where you should invest more because your ROI is higher in particular areas. It’s important not to just track annual numbers, but monthly and quarterly to assess shorter term, as well as over time because there may be small fluctuations, but this helps you build trends.
12. Keep Your Personal Finances Separate
You should keep your personal finances completely separate from your business. When you start your own business, you are usually responsible for pretty much everything, which includes bookkeeping. To make life easier for yourself, a fundamental tactic to avoid a lot of confusion, in the long run, is to set up a separate bank account for your business.
Doing this will save you a great deal of time and energy when sifting through your expenses because you won’t need to filter out any personal purchases you have made. It’s also a good idea to have a separate bank card for your business, so when you’re going through your invoices and receipts, you will know that all the expenditure has gone on business-related items, helping you to speed up the bookkeeping process.
Source: Fits Small Business