6 Bookkeeping Best Practices for Small Business Owners

If you want to be a successful small business, you’re going to have to learn how to keep the books in order. Bookkeeping is vital to the survival of a small business and can help owners make better business decisions. Most small business owners are not familiar with the best bookkeeping practices, and outsourced bookkeeping services could be a solution to ensure proper management of your financials. Whether you decide to do it yourself or outsource the task, it is essential to not be left in the dark about your company’s money situation.

What is Bookkeeping?

Bookkeeping involves the recording, storing and retrieving of financial transactions for a company, nonprofit organization, individual, etc. Common financial transactions and tasks that are involved in bookkeeping include:

  • Billing for goods sold or services provided to clients.
  • Recording receipts from customers.
  • Verifying and recording invoices from suppliers.
  • Paying suppliers.
  • Processing employees’ pay and related governmental reports.
  • Monitoring individual accounts receivable.
  • Recording depreciation and other adjusting entries.
  • Providing financial reports.

Why is Bookkeeping Important for My Business?

Bookkeeping is an essential function for any business. Small businesses can especially benefit from accurate bookkeeping. Having accurate books can help your business analyze past decisions, and set goals that will help your company grow. Once your books are organized, members of the accounting and or management team will be able to see what invoices have or haven’t been paid, streamlining the cash flow of your business.

In order to ensure your business is on the path to success, you should adhere to the following bookkeeping best practices for small businesses:

6 Bookkeeping Best Practices for Small Businesses

1.Determine Your Accounting Method

There are two accounting methods that your business can use: cash and accrual. The accrual accounting method records revenues and expenses when they are incurred, regardless of when cash is exchanged. Cash basis accounting, which is more common of the two, records revenue when cash is received, and expenses when they are paid in cash.

According to the Small Business Administration, cash accounting is more straightforward and better for cash management. Cash flow management can be especially tricky for small businesses in the initial growth stages, so cash basis accounting may make more sense. Accrual accounting can provide a clearer picture of your financial state because it simultaneously records expenses related to an item — and the revenue the item brought in. Accrual accounting can be deceiving, though, and it’s more complex to manage. In general, accrual accounting makes sense for larger more complex businesses.

2. Keep Your Personal and Business Finances Completely Separate

Most business owners think that just because they can still manage their finances today, using one bank account for all their finances is appropriate. This is a misconception. Small business owners must make it a point to keep separate bank accounts for different aspects of their business. It can be tough to differentiate between personal and business spending and income, but having a bank account solely dedicated to your business helps you easily determine the amount of money that goes in and out during a specific timeframe.

When you have a separate bank account for your small business, you’ll be able to determine the exact amount of your business’ finances, making it easy for you to budget for your employee payroll, mortgage payment, and establishment rental. You’ll be able to effectively manage your finances once you have a clear understanding of your available resources.

If you’re planning to adopt this strategy to your business, consult with several financial institutions in your area and compare their services. You should also inquire about the monthly fees and available discounts once you open multiple accounts under them. Outsourced bookkeeping services or a local CPA can help you set up your business bank account and ensure you are setting up the best account for your business.

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3. Establish Internal Controls

You should establish internal controls in your company’s bookkeeping policies and procedures to reduce the risk of fraud. The most important best practice to prevent fraud follows the standard accounting practice of separation of duties. No one employee should ever have control of all three primary accounting functions of authorization, record keeping, and custody of assets. For example, you should have one employee write the check and another reconcile the bank account, and a third sign to authorize the payment.

Outsourced bookkeeping services help ensure that your financial operations are well managed. It’s an efficient, flexible, and professional solution for your business back office, and you’ll receive accurate financial reports from experts in small business accounting.

4. Maintaining Accurate Records

Not keeping accurate and up-to-date accounting records can easily be the demise of your small business. These records help guide tax filings and decision-making and are key documents for lenders or investors deciding whether they should invest in a business. The IRS recommends using a journal to record each transaction and a ledger containing the totals from the journal, which you should organize into different accounts.

5.  Use Accounting Software to Track Expenses

You should keep a thorough record of all your business expenses. This means saving and recording receipts on at least a weekly, if not daily, basis. Without a solid core accounting software system (like QuickBooks) and cloud-based expense technologies, daily bookkeeping tasks will put a major strain on your time. Without using technology, this burden will only become greater as your business grows.

When you determine which accounting software you will use, do not simply consider whether it meets your current bookkeeping needs. You should also evaluate each software system and technology for its ability to scale with your business as it grows and your back office needs to expand. Outsourced bookkeeping services can help implement the latest accounting technology for your small business.

6. Keep a Close Watch on Everything:

Everything and anything related to the small business must be tracked by saving receipts, using a dedicated bank account and business credit card. Receipts are solid proof of the money that is being spent by the small business throughout the year and save them either in paper or digital form can be really helpful when the business is getting audited. Late and unpaid bills can seriously affect the cash flow of the business. Keeping a close watch on the cash flow statement can help the small business in avoiding the scenario of insufficient funds. A good way to ensure that expenses are correctly entered into the accounting software is to keep a record of all the receipts. Outstanding invoices can be determined by looking at the monthly reports generated by the accounting software.

What If I Can’t Keep-Up With My Business’s Bookkeeping?

Bookkeeping may seem like a burden for small businesses when they are trying to grow their business but it is extremely essential if they want to stay ahead in today’s tough economic climate. If your business is spending as much time or more handling your business’s finances as you do working with your business’s consumers, it may be time to consider outsourcing your bookkeeping.

Small business can employ the services of a professional accounting and bookkeeping outsourcing service provider to fuel business growth and mitigate risks. Giving importance to bookkeeping not only improves the understanding of the business operations but also builds financial credibility and speeds up growth.

Limitless Investment and Capital’s Outsourced Bookkeeping Services

At Limitless Investment and Capital, our outsourced bookkeeping services scale to meet your growing company’s needs. We provide basic service plans that help you establish sound bookkeeping and accounting practices with the best technology tools available to assist you with monthly tasks. These basic services can be scaled up until you reach a full-service management accounting option that includes a dedicated team of bookkeeping and accounting professionals who handle daily, monthly, and quarterly tasks. Call us today to get started!