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We’ve put together an extensive list of 7 bookkeeping tips to help with the overall efficiency of your business.
Now, maybe you’re doing some if not all of them already. If you’re doing all them, Kudos to you! Feel free to skip this article and check out the next one.
If you’re a small business owner, whether new or experienced, you know by now that having accurate books is an essential part of running a successful business.
Should you get audited by the IRS, you won’t have any issues.
The order in which these bookkeeping tips were put together is not necessarily to be followed to the T.
As we said, you may be doing some, if not all, but the point is to identify one or more, then try to work at it.
Now grab your pen and notepad as we go over 7 bookkeeping tips for today’s small businesses:
1st Tip: Keep your personal expenses separate from your business
When you first start your business, you’re probably thinking that since you’re small, what’s the point of opening a business account? Wrong!
Regardless of the size of your business, setting up a business account for the expenses of your business will benefit you in the long run.
Many times, we come across business owners who are running just about everything related to their businesses from their personal accounts.
When it’s time to send over bank statements, we’ll come across many personal transactions which makes it very tedious, having to sift through personal vs. business.
The same can also be said about business owners who run their personal transactions from their business accounts. That’s another subject for another article.
A lot of back and forth, especially if there are no receipts for a particular transaction.
Of course, you may want privacy as well.
So, if you don’t want your bookkeeper going into your statements and looking at what you’re spending on a daily basis (personal), then keep your business expenses away from your personal bank accounts.
How hard can it be to open a business account? Though it may sound complicated to get a business account, it’s actually pretty simple.
As a former bank executive, his experience allows him to truly understand the challenges small business owners face today. We recommend you give that article a look.
Another benefit to having a business account, as silly as that may sound, it’ll make you look more professional.
Imagine if you had to give your client or your vendor a personal check instead of a business check with your business name?
In the business world, even the smallest things can leave a long-lasting impression.
So, the lesson here is to keep your life and your business separate.
2nd Tip: Stay consistent when it comes to reconciling your bank statements
This is probably the most common problem we see business owners face. To be fair, some business owners are so busy that they don’t have the time or the resources to regularly reconcile their bank statements.
When you’re a new business owner, you probably won’t have that many transactions to go through or record, so it’ll definitely be a lot easier to reconcile your transactions daily or weekly.
As you grow, the transactions will also grow, which means you’re either going to stay on top of it or end up falling behind.
What does it mean to reconcile your bank statements? Reconciling your bank statements is simply the process of matching your transactions to your accounting records.
You pretty much have to take time to compare each transaction to make sure that there are no discrepancies. If you want accurate financial statements, then you must reconcile.
How often should you reconcile? Well, ideally, it’s up to you, but the bottom line is, you should not be waiting 6 months or the last minute to reconcile your bank accounts.
Come tax time, if you have the habit of reconciling consistently, you will not feel the stress of many business owners who wait the last minute to get their reconciling done.
Another great benefit of reconciling frequently is that you’ll be able to detect any discrepancies or fraud which can be addressed right away.
Another thing to keep in mind is when you’re falling behind on reconciling your books, you may end up to having to hire a bookkeeper which will end up costing you more money depending on how far behind you are or how much the bookkeeper will have to do to bring you current.
3rd Tip: Stay Organized
Organization can’t be left to chance. To be a successful business owner and to have clean books you must be an organized business owner.
This is probably one of the most important bookkeeping tips on this list.
What does an organized business owner look like? An organized business owner is one who is aware of just about everything that’s going on with the business.
From vendor transactions to the overall financial health, nothing is guessed, everything is tracked.
Your books should also be very well organized. Come tax time, you’ll be happy you stayed on top of it all.
Here are some of the things related to bookkeeping you’ll need to keep organized:
- Any receipts related to your business.
- Saving and keeping all documentation including tax forms related to your business
- Keep track of your mileage
Speaking of receipts, it may be difficult to always have to keep receipts as these little pieces of papers tend to get lost.
Expensify is a software designed to help you organize your expenses and record them so you can focus on running your business.
4th Tip: Know what’s deductible and what’s not
You definitely don’t have to be pro at this, but you should have a general idea as to what you can deduct. 2018 saw the biggest changes in the tax laws.
The Trump administration made quite a few changes. You can read all about it here in this article regarding the Trump Tax Reform.
As a small business owner, having a bookkeeper or an accountant might prove to be very beneficial especially if you have questions on your business taxes.
Of course, the IRS can also be a good resource.
What bookkeeping tips would you add under this subject? Let us know in the comment section.
5th Tip: Anticipate major expenses
It’s always a good idea to keep some funds aside to tackle unplanned situations or future expenses.
For example, if your business sells goods, you may have to anticipate future expenses like the holiday season. Does business pick up around that time? What will you do for inventory?
As far as unplanned situations, no one likes surprises. The reality is that when it comes to running businesses, surprises are just unavoidable.
What will you do if something needs to be repaired or a tax expense shows up?
It’s important to always set aside an amount each amount to plan for the unexpected.
6th Tip: Decide which bookkeeping/accounting method to use
Another major decision you have to make is to find out which bookkeeping or accounting method you’ll be using to keep your books clean and accurate.
Within small businesses, single entry and double entry bookkeeping are pretty much mostly used. To learn more about these methods, make sure to review these bookkeeping principles.
Once you have decided which bookkeeping method to use, you’ll be able to keep your books accurate.
You may not be the one handling your books. If you don’t feel comfortable managing that, your accountant will be able to tell you which method fits your business best.
Even if you’re not a genius at it, it’s important to note that knowing or having some sort of knowledge will go a long way.
If you have some basic knowledge, you’ll be able to and ensure your books are being done correctly.
7th Tip: Don’t pay cash for everything
Okay, this might sound funny, but as a business owner, paper trail is the most important thing. Cash payments are extremely difficult to trace.
Again, come tax time, it’s much easier to file your taxes if you have paperwork to back up whatever it is your recording.
Paying for things electronically is much easier nowadays with services like Paypal or Stripe, you can send or accept payments.
Bonus Bookkeeping Tips
We said 7, but rather than stopping there, we’d like to give you 2 more bookkeeping tips to help you and your business.
Take your bookkeeping online – Bookkeeping can be extremely difficult if you are not the type of person who likes to deal with numbers on a daily basis. Even though you’re really good at running your business.
It’s essential to hire a professional bookkeeper to keep your books accurate as we mentioned before.
Now, you may feel that a bookkeeper or an accountant might be a bit too expensive, especially if you’re just starting out.
The past few years, we’ve seen many companies switch to online bookkeeping services to help get their books done. Why is that?
You can get your books done by a professional bookkeeper at a fraction of the cost.
Is it safe you might ask? With online fraud so rampant today, why would you entrust your books to the internet?
Aside from heavy background checks and strong firewalls, we use PLAID.
PLAID allows financial companies like ours to connect to your bank accounts without actually storing your username and password on our servers.
Simply put, they act as the middle man to make sure your information is safe and secure. So, we don’t see your bank account info, your passwords, etc. Only balances and transactions.
We take security and confidentiality very seriously.
Monitor your accounts receivable – If your customers are not paying you on time or at all, your business’s financial health will suffer.
It’s important that you stay on top of these customers to make sure they’re notified right away when they’ve missed the due date.
As a new business owner, to avoid this, depending on the type of business you run, you may have to require a deposit upfront or some sort of payment plan.
This will ensure that you’ll have money coming in.
Bookkeeping can definitely be overwhelming but if done right, you’ll find that there’s not much to worry about it.
You’ll also find that there are professionals who are really good at what they do and you can definitely trust their knowledge when it comes to handling your books
You might have more bookkeeping tips that we did not cover, don’t hesitate to share what those are with us in the comment section.
Until then, happy bookkeeping!