Administrative tasks like bookkeeping can take a small business owner's attention away from business-building objectives. It's hard to focus on development, sales, and marketing when you're struggling to balance your company's books.
To run a successful company (and get some free time for luxuries like sleep), making the bookkeeping process as practical as possible is essential. The following bookkeeping tips and tricks will help you ensure accuracy and efficiency, so you can focus on running your small business.
Working on your company bookkeeping regularly helps ensure that you stay up-to-date on how your company is performing. Knowing this critical financial data enables you to pivot quickly, if necessary.
Regular bookkeeping also keeps your financial records current, so you can access information the moment you need it. Make catching up on your books a weekly habit and give it a set day and time.
To keep your business books as clean and accurate as possible, it's essential to separate your business banking and spending from your personal. That means opening business checking and savings accounts and funneling all the company's money through those accounts. It's also a good idea to have a business credit card.
Separating business and personal banking makes preparing the data for your financial reports and taxes easy. You simply record all the expenses in your various business accounts.
Mixing business and personal expenses and receipts means you'll have to sort through all the transactions when doing the company's bookkeeping. This makes it difficult to use business bookkeeping software effectively. And if you have someone else entering business expenses, it isn't very practical or professional to make them sort through your personal finances as well.
Recording all expenses is critical for tax purposes and accurately gauging how your business is doing financially. How much money your business spends is just as important as how much it makes.
Be vigilant about recording and collecting evidence of all expenses. If you use cash for a transaction instead of a credit or debit card, make sure to get a receipt. Include all tax-deductible expenses in your books.
To avoid costly mistakes and keep on the IRS's good side, familiarize yourself with what types of expenses you can claim on your taxes. Expenses directly related to operating your business or producing income for your company are tax-deductible. Record all such costs in your books, including products for resale, supplies to operate, equipment costs, rent, utilities, lunch with clients, maintenance costs, and fees associated with training.
If an expense is for you personally, it is generally not tax-deductible and should be kept out of your business books.
While cash is king, it can create havoc with your bookkeeping system if you forget to record cash transactions. Unlike credit or debit card payments, cash leaves no digital records, so it's vital to have a consistent system for receiving and recording cash payments.
Record cash received in your accounts receivable ledger and deposit it into your business bank account or petty cash before spending it. That way, you create a paper trail, and your books accurately reflect the transaction.
If your work is service-based, you likely invoice clients. On-time invoicing is critical to continued business success. When you invoice customers promptly, you ensure that your cash keeps flowing in.
Getting behind by even a week can cause cash flow to grind to a halt. This will negatively affect your business across the board. Stalled payments can make it difficult to pay your bills, including vendors, employees, and yourself.
Sending invoices late also breeds poor customer relations. Few people want to receive a bill for services rendered a month or more later. Your company will appear disorganized at best. Waiting too long to send an invoice also makes it more difficult to effectively deal with a dispute if a problem or question arises.
If you use a digital bookkeeping system, you can quickly run key financial reports whenever you wish. Such reports will give you a quick snapshot of how your company is doing. Depending on your business, you may want to run reports weekly. At the very least, do so monthly.
Some key reports to generate regularly include your company balance sheet, income statement, and cash flow statement. Checking your reports consistently helps you stay ahead of any financial trends that could negatively or positively affect your business. Knowing precisely what's happening with your business' finances can help you plan for future expenses.
If you want to run a successful company, you need accurate records. It's a good idea to reconcile your bank statements with your books at the end of every month. If there are any inconsistencies, you can find the error quickly. The longer you wait to balance your books, the more complicated and lengthier the process becomes.
Even when working on a cloud database, it's a good idea to have an extra backup of your financial documents. That way, you can access reports when needed if there's a technical failure or downtime.
Every business will eventually have major expenses, so budget well ahead of time for big-ticket items like new equipment, inventory, and business taxes. Planning ahead will keep you from being forced to empty your savings account or get a small business loan. Setting aside a small amount of money every month for long-term expenses will ensure you have the cash for those bills when the time comes to pay.
It's easy to lose track of who owes you money if you don't pay attention and check regularly. At the end of each month, examine your accounts receivable report to see which customers lag in payment. Contact any that are behind. The sooner you get paid, the better for your business.
Keep your small business's bookkeeping current and in good order, and you will spend less time on bookkeeping and more time on running your business. Swyft Books offers a seamless, quick, and easy way to keep your books current. For a free trial, click here.