Financial reporting can be frustrating and confusing for small business owners. Handling, keeping, and storing dozens of financial documents and statements aren’t exactly among the favorite things to do for most entrepreneurs, but they are necessary. Maintaining good bookkeeping practices and organizing financial records are crucial for every small business owner.
Here are a few organization tips for small business financial reporting.
To stay organized and be 100% sure you don’t miss anything, you must check every statement before filing it. While the chances of a mistake are minimal, you never know when a problem might arise.
Missing a seemingly minor error could turn into a big problem over time. Of course, the problem probably won’t end with you in jail, but it could still be significant enough to cause numerous bureaucratic issues and possible financial penalties. Such mistakes almost always end up costing you more than you thought.
Fortunately, you can avoid this if you read every statement carefully and ensure the numbers are correct before filling it.
The benefits of having an efficient filing system are numerous. It helps small business owners stay organized, maintain regulatory compliance, keep paperwork safe, and have an idea of their financials at any time.
For example, you can sort your financial reports into three piles: to do, file, and shred. The “to do” pile should contain all unsorted bills, unread mail, and other paperwork that requires action on your end. Every document you need to save should be in the “file” pile. You can organize this pile by type, date, or another criterion you find helpful. The “shred” pile should contain documents and statements more than three years old, junk mail, and paperwork you won’t need in the future.
It’s important to remember there are no universal rules for creating a filing system. Think about what makes the most sense to you (and your employees) and start from there. Sketch out a system that resembles how you sort information in your head, name the piles as you please, and maybe consider color coding for easier recognition. Start simple, and then build your system gradually.
Besides creating an efficient filing system, staying consistent is equally important. Schedule a time every week when you’ll catch up on filing so that the paperwork never gets piled up. Don’t forget that your needs may change as you grow your business, so be willing to adjust your filing system as it follows this development.
While keeping track of incoming bills and statements is essential, don’t forget to remove files you no longer need. Once or twice a year, go through the files and eliminate the paperwork that only takes up space, such as old bills and statements, junk mail, and more. Purging files regularly will help you stay organized and reduce clutter.
Many small business owners keep their financial records on their computers to save a lot of space and time. Plus, most banks are turning towards digital instead of paper statements, making organization much easier.
If you want to go digital, the first step should be creating folders on your computer. You can use your company’s name as the folder’s name and create subfolders where you’ll keep all your documents.
Then, it’s time to digitize all your documentation. Start with signing up for e-receipts, e-statements, and everything else to reduce paper clutter and avoid confusion. The next step is scanning all the relevant paperwork to convert it into digital files. This can be a lengthy and exhausting process depending on your company’s size and the number of clients.
Once you’ve scanned your files, place them into appropriate folders. If you want to make your organization process much easier, use descriptive names for your files. This will help you navigate your folders more efficiently since you’ll know what a file contains even if you don’t open it.
Whether you’ve just digitized your business or did it a while back, it’s important to remember that computers can break down. Unfortunately, this usually happens when you least expect it. In just a few seconds, all documentation related to your small business can disappear entirely without the ability to recover it. In such cases, you’d need to rebuild your company’s paperwork from scratch, which is time-consuming and expensive.
Fortunately, you can prevent these situations by creating a backup. You can choose whether you want to make copies of your files on a flash drive, external hard drive, or an online storage drive. Many small business owners find the latter most convenient because it allows them to access their files from any location. Plus, there’s no risk of device malfunctions.
Tax season is one of the most stressful periods for small business owners. To avoid last-minute stress, you must be proactive and prepare for the tax season. You should gather and prepare your tax documentation before things get out of hand.
The tax form type you’ll need depends on the type of business you’re running. Besides that, here’s a basic list of the necessary documents:
If you used your personal credit card to purchase something for your business, you’d need to document these expenses for tax reductions.
Financial reporting can be frustrating and complicated for small business owners, regardless of when they started their company. New small business owners usually feel overwhelmed and have numerous obligations, so organizing paperwork isn’t a priority. Meanwhile, those who’ve run their business for years but do not keep accurate books may realize they’re in over their heads concerning financial reporting.
Unfortunately, mistakes in financial reporting are common. Failing to study statements and identify inconsistencies or miscalculated financial ratios isn’t something you can sweep under the rug in the long run. These mistakes are bound to catch up to the owners at one point or another. Since fixing such mistakes is time-consuming and costly, one of the best ways to prevent these scenarios is to hire a third-party bookkeeping service.
A reputable bookkeeping service is an invaluable ally in developing your business. They’ll handle the paperwork while you focus on other aspects of your company. Instead of spending hours doing clerical work, you can make your business thrive, take a vacation, or spend more time with your family.
Another significant benefit of hiring a bookkeeping service is the reduced risk of mistakes. Bookkeepers are trained to be thorough, efficient, and accurate, so you can have peace of mind knowing you won’t miss any payments or struggle during tax season.
Many small business owners handle financial reporting themselves because they don’t want to spend money on a third-party bookkeeping service. However, the reality is quite the opposite; a good bookkeeper can save you money. Ensuring your paperwork is accurate and up-to-date means there’s no risk of late payments or inconsistencies. Moreover, a bookkeeper can spot trends in your income and spending and point this out to you so that you can make changes if necessary.
One of the benefits of organizing your financial records is the ability to plan. After all, most small business owners want to keep developing their company. For some, that means conquering new markets; for others, that’s developing online marketing strategies or hiring more employees. Whatever your plans for the future are, you need to prepare documentation that could help you achieve your goals. If you plan your expenses, you’ll be able to decide whether your goals are realistic and what you need to do to get to them faster.
The first thing you should do is prepare cash flow forecasts. These are projections about your future expenses and revenue. Cash flow forecasts can cover any period from a few weeks to years. Hence, the first step is to decide how far out you want to plan. If you’re well-established and have had stable years in terms of profit, you can usually predict far in advance. On the other hand, if you just started your business, you probably don’t have enough information to prepare future forecasts. Don’t worry too much about it; you can adjust your projections over time as you get more accurate estimates.
Your cash flow forecast should contain your income – including grants, shareholder investments, or royalties – and outgoings, which are expenses like salaries, rent, assets, bank loans, etc.
Next, you’ll need to create weekly or monthly columns and subtract the outgoings from your income. You’ll get either negative or positive cash flow figures that will tell you whether your business is doing well and help you plan.
Keeping your financial reports organized can be difficult, especially if you recently started your small business. Bills, payments, payroll, insurance, rent, receipts, and dozens of other important documents circulate through your company, and managing them is quite a task. Even if you try to do everything right, one small mistake can cost you a lot of time and money.
Fortunately, you don’t have to deal with financial reporting alone. Instead, you can work on other aspects of your business and let a third-party software like Swyft Books take care of financial reporting.
The Swyft Books software organizes your reports, assists in managing expenses, and tracks cash flow. This cutting-edge software can help you take your business to a new level and help you be 100% sure your paperwork is accurate and up to date. Sign up for a free trial to discover the software’s amazing features.