Good bookkeeping is essential to keep your business thriving—not just surviving. Bad bookkeeping can cause your business a multitude of problems, from poor cash flow to improper tax filings and beyond. These issues will put your business at serious risk, which is why good bookkeeping habits for startups and small businesses is essential.
Many entrepreneurs aren’t numbers people and prefer hiring outsourced bookkeeping services to handle their accounting. But what does good bookkeeping for entrepreneurs mean? We have prepared 8 useful tips to help small business owners and entrepreneurs master their bookkeeping whether they outsource or do it on their own.
1. Separate your personal and business finances.
When your business is just starting out, it’s easy to mix and mingle expenses and income — but it’s a big mistake. Co-mingling business and personal money can lead to big tax headaches down the road. As soon you have formed your official business entity, you should open a business bank account. It’s also a good idea to get a business credit card as soon as possible. Using a business credit card responsibly helps your business build its credit rating separate from your personal credit rating.
2. Plan for major expenses
It can be hard to foresee every expense coming your way, but if you can plan and prepare for major costs, you’ll be in a much better place long term. Build in a contingency plan, where you forecast for large expenses, such as inventory, supplies, maintenances, staff costs and tax on a regular basis. A large part of bookkeeping is managing your money well, so you set your business up for success long term.
3. Record deposits correctly
Adopt a system for keeping your financial activities straight, whether it’s a notebook you use consistently, an Excel spreadsheet or software such as Quickbooks. Business owners typically make a variety of deposits into their bank account through the year, including loans, revenue from sales and cash infusions from their personal savings. The trouble is that at the end of the year, you or your bookkeeper might erroneously record some deposits as income, and consequently pay taxes on more money than you’ve actually made.
4. Get software- the right software
A good bookkeeping automated system is well worth the money. There are more choices than ever, these days, and there are multiple systems designed for small businesses. There are many different options out there, so look for a system that best meets your business needs—and one that you’ll actually use. If you’re not an accountant by training, then avoid systems that require a telephone book-sized manual to get started.
5. Keep expense receipts
You can’t know how much you’re spending on your business if you don’t keep receipts. This is somewhat straightforward for credit card purchases since you’ll have both receipts and monthly statements against which to check them.
Where things can get tricky is if you aren’t careful with cash expenses. These receipts matter even more since there are no backup statements. Some people keep a small notebook with them to log cash expenses as they’re incurred. Better yet, entrepreneurs could follow Smith’s lead—she uses an accounting app on her phone to snap pictures of her receipts as she goes, and doesn’t keep the paper copies.
6. Stay on top of your business’s accounts receivable.
Late-playing customers can become a huge problem for your business’s cash flow. Cash flow is one of the top reasons small businesses fail and that’s why it’s essential to pay attention to when your receivables are due and act immediately when they’re overdue. Reach out to late-paying customers right away to see what’s going on with their payment and when you can expect to receive the money. If the customer is having financial difficulties, see if you can work out a payment plan to start getting some of the money that’s owed to you.
7. Do a weekly checkup.
Many entrepreneurs aren’t numbers savvy, and the natural tendency may be to put off the “boring” part of entrepreneurship as long as possible. Then, you end up with books that aren’t balanced, bounced checks or unpaid invoices that are months overdue. One of the best bookkeeping tips for small businesses: Review your books at least once a week. It will help ensure your finances are in good shape.
8. Do a quarterly checkup.
At the end of every quarter, take a closer look at your bookkeeping and accounting records to identify trends, both positive and negative. Do you have certain clients who always pay late? Are your revenues growing or declining? How do your finances compare to the same quarter in 2019?
Meet with your accountant to go over the numbers if necessary. Looking at the big picture on a regular basis will help you be better prepared for future financial needs. For example, if sales are rapidly rising, you may need to hire more employees or purchase new equipment, which could require financing. The earlier you plan for obtaining capital, the easier it will be to get it when you need it.
The Bottom Line
Small business bookkeeping is essential for your business to thrive. Without understanding the finances of your business, a business owner cannot make the best business decisions. If your business is struggling to manage its bookkeeping and accounting, hiring an outsourced accountant or outsourced bookkeeping services is essential to get your business on the right track.
Limitless Investment & Capital Outsourced Bookkeeping Services in Denver.
Limitless Investment and Capital’s certified accountants in Denver will help boost your chance of business success by having secure and accurate financials. We pride ourselves on being proactive accountants equipped with data to help your business grow. Contact us today to learn more about our outsourced bookkeeping services in Denver.