20 Essential Bookkeeping Tips for Small Business
1. Record each and every one of your transactions
To know exactly how your business is doing financially, you need to record every cent that comes in or goes out. Create the habit of recording transactions directly after you make them. Even the smallest amounts can put your books out of balance. Over time, your business could miss more and more money with no record of where it went. Put them down instantly, so you won’t forget about them and keep your balance sheet up to date.
2. Update your books frequently
Regularly set aside time to update your books. For the most accurate numbers, it’s advisable to update your records every day. Although the task takes time, refraining from it on a regular basis may lead to various accounting problems.
It is essential to know how your business is performing. Without accurate, real-time bookkeeping, financial issues can easily arise. If you lack the time or skills to do the bookkeeping properly yourself, you can always consider (partially) outsourcing your bookkeeping at reasonable costs.
3. Keep track of important dates
Know when to pay your bills, when a customer’s payment is overdue, and when it’s time to review your financial statements. Consistently put down the dates for your accounting tasks and stick them on your calendar or set reminders on your computer. And don’t forget to include dates on which taxes are due and when you should file certain reports.
One of the most common mistakes that small business owners make is underestimating the time and energy required for bookkeeping. As a result, they often fall behind on payments or make costly errors. If you find yourself frequently behind schedule, consider the help of a professional bookkeeper.
4. Learn key information
As a (small) business owner, make sure you grasp the core concepts of accounting. A basic understanding of the common terms, formulas, and reports is not nice just “nice to have.” You risk of making costly errors if you don’t.
Learn the most common accounting terms and teach yourself how to use basic financial ratios. Look at financial statements and learn what to use them for. When you understand how accounting works, you can more successfully manage your own books.
5. Review your reports regularly
No business owner likes to make decisions based on inaccurate knowledge. Prevent this by reviewing your financial reports regularly and create a schedule for it (e.g. look at your income statement at the end of every month).
Every report has different information and is here to help you make different decisions. However, reports are useless if you don’t look at them frequently enough. Examine them over time to know exactly how your business’s financial health is faring.
6. Communicate well with your bookkeeper
Your business could suffer from insufficient communication between you and your bookkeeper. Discuss the means of communication which both of you can be comfortable with and keep him or her integrated and involved with your business activities. This way, your bookkeeper can create financial statements that reflect your business’ true operational needs.
7. Learn the basics of record keeping and accounting
Purchased small business accounting software and thought it would solve all of your problems? Even with the best software, you need some basic knowledge of bookkeeping. Especially to stay in line with regulatory compliance as there is a substantial difference between record keeping and accounting.
Software alone does not eliminate your accounting problems. If you need support, consult with a professional.
8. Partner with a professional who eases your stress
Find someone who addresses your needs when you go out looking for support. Is your consultant trying to turn you into an accountant yourself, rather than alleviate your bookkeeping stress? Hire a professional who allows you to focus on running your business and is capable of communicating the financial status of your business in a way that makes sense to you.
9. Interpret and analyze before making decisions
Making sound financial decisions is best done if preceded by three steps: interpreting, analyzing, and advising. Generating numbers is only the first step. What do the numbers in your financial reports mean? And more importantly, how can you improve them?
Schedule time to analyze and interpret your management reports or consult with a professional. You already have to dedicate time and energy into these reports to remain compliant, so it would be senseless not to use them to your advantage to improve your business.
10. Determine how financially healthy your business truly is
Having money in the bank isn’t a sign of financial stability. Small business owners often fail to take their liabilities (like loans and credit) into consideration.
You need to take the time to understand all the components that determine the true health of your business; cash, assets, and liabilities. Once you’ve determined what you really owe, you may find that you don’t have the funds to pay off your debts.
A realistic understanding of where your small business stands can change how you approach future decisions.
11. Avoid mixing personal and business expenses
Are you paying with the right card? Before making any payments with your credit card or ATM card decide whether the purchase is for business or pleasure.
Minor expenses can add up, so remain vigilant about keeping your expenses straight.
If you’re consistently mixing business and personal expenses, you risk either losing out on deductions or overdoing them. You’ll either lose money or run afoul of the tax authorities. Neither are good for you and your business.
12. Use apps to create digital records of your receipts
Although most banks offer websites and mobile applications to track your transactions, receipts are still important. No need to file paper receipts anymore, however. New applications like ‘Expensify’ and ‘Shoeboxed’ enable you to snap a picture of your receipt with your smartphone or tablet. The digital image will be cataloged for easy reference and retrieval later. And yes, that means you can pitch the paper version!
13. Make proper backups of your files
Whether you keep physical or digital files, make sure they are properly backed up. Without backups, a lost folder or corrupted hard drive can result in untold losses for your business. As with all valuable data, redundancy is your friend. Always create digital copies of important physical documents and try to save digital documentation on both local drives and a cloud platform.
Cloud-based backup services like iDrive protect your data against loss by storing multiple copies on different servers. They also provide added convenience by making your files accessible to you from any internet-connected device.
14. Make frequent bank reconciliations
Bank reconciliation is the process of comparing your accounting records with your bank statements. Most business owners prefer to do this on a monthly basis but it can be done more frequently as well. The goal of the reconciliation is to ensure the discrepancies between the records can be accounted for. These could occur due to checks that haven’t cleared yet or pending transfers, for instance. However, they can also be caused by errors, bounced checks, embezzlement, or fraud.
If you fail to perform routine bank reconciliations, you risk letting issues persist and grow. Software like QuickBooks makes it easier for businesses to remain on top of reconciliation at all times.
15. Hold your employees accountable to reach goals
Your bookkeeping system can help you hold various people accountable including customers, vendors, and employees. To reach your goals it’s especially advantageous to focus on holding your employees accountable.
If you have a solid financial budget and forecast in place, you should be able to do financial reporting analysis on your small business. Make it a habit to review your financial reports with your sales team and other key employees. It is a great way to measure progress and keep your business on track. Your bookkeeper can help you with the required reports.
16. Invest in a proper bookkeeping system
A good bookkeeping system can show you exactly what the financial state of your business currently is. It frees you from the uncertainty of the unknown, so investing in a proper system is worthwhile.
Outsource your bookkeeping and focus on what you are good at and enjoy doing! A dedicated bookkeeping professional can solve many problems. Partner up to ease accounting stress and grow your business!
17. Make sure your company is investor ready when looking for loans or investors
If you plan on raising money for your business, it’s important to keep your bookkeeping investor ready. Keep your books up to date and reconcile your system regularly. Prospective investors and banks always request to see an updated balance sheet and profit & loss statement. There is no way they would invest in a company without checking the financial health of the business first.
18. Make sure your bookkeeping system is ready for growth
Scaling a small business may be difficult but trying to scale without a proper bookkeeping system in place makes it even harder.
Before you start selling non-stop, take a step back and make sure your bookkeeping systems are ready for explosive growth. As you scale up, your bookkeeping needs will change and you’ll need to alter your system to meet those needs. It’s easier to make adjustments if you put the proper bookkeeping system in place from the beginning.
If you need help with the set-up of your bookkeeping system, seek professional assistance.
19. Manage your cash flow with QuickBooks
QuickBooks can be a valuable tool for managing your cash flow as a small business owner. With QuickBooks’ cash flow service, you can keep track of your current bank account balance and see what it will look like in the (near) future.
However, this method only works if you update your financial records regularly. Recording checks before they hit your account, for instance, is a must and recording deposits prior to bringing them to the bank also helps you get accurate insights. If you set up and use QuickBooks in the proper manner and regularly update the software with new transaction information, you will predict and manage your cash flow very effectively.
20. Prepare and continuously update your business budget
A budget is a financial document used to estimate and plan future income and expenses. Amid starting or running your business, it may seem like a hassle to create a proper budget. However, without it, you may encounter various hiccups (or worse) along the way.
A business budget is required or helps..:
to plan start-up needs for your business plan;
to get a business loan;
to plan your spending: how much can you spend each month and how much you can take out of your business as a salary to live on;
to create an emergency fund for unexpected costs: you may not know what those specific costs are, but making sure you have an emergency fund to be able to deal with them is a must;
to determine your required profit to break even.
The benefits of a properly prepared and continuously updated business budget include being better able to…:
manage your money effectively;
allocate appropriate resources to projects;
monitor performance;
meet your objectives;
improve decision-making;
identify problems before they occur – such as the need to raise finance or cash flow difficulties;
plan for the future;
increase your staff’s motivation.
Need assistance with any of the activities listed above? Discover how Financials4Rent can help or contact us to identify your custom requirements.