Doing less than an excellent job keeping track of your business finances? Maybe your New Year’s resolutions should be to get your financial house in order. Small business bookkeeping is essential to the success of your business and can help business owners make sound decisions.
Technology makes many aspects of bookkeeping services easier, but it brings about new challenges for business owners. Not only do business owners who are struggling to keep their own books need to know accrual-based accounting and the Generally Accepted Accounting Principles, (GAAP), but they must know how to leverage the bookkeeping software applications. Small business bookkeeping services can help your business implement new software and even completely take over your books at an affordable rate.
When you don’t have a system and some processes in place, unpleasant surprises can pop up, goals can be easily missed and important paperwork is forgotten. Getting a better handle on your money through small business bookkeeping can help you to make and keep long-term goals, smooth out the seasonal ups and downs of your cash flow and maybe improve your profits. It can also help you to stay out of trouble with the Internal Revenue Service.
7 Small Business Bookkeeping Tips for Business Owners
1. Use the right accounting system.
Most businesses use either cash-based or accrual-based accounting. If you use the cash method, you count income when you receive it and expenses when you pay them. Under the accrual method, you count income and expenses when they happen, not when you actually receive or pay them.
In practical terms, this difference in timing is critical if your company keeps inventory on hand or handles transactions on credit. In these cases, the accrual method might be a better choice for your business. In fact, if your firm has more than $5 million in sales or keeps an inventory, the IRS might require that you use the accrual system. In other cases, however, the simpler cash system could be all you need.
2. Review bank statements and credit card statements
These statements should always come to the business owner or cardholder unopened. Review them thoroughly before passing them to the bookkeeper or another employee, thereby preventing unauthorized checks or credit card usage. These are the biggest losses within a small business.
3. Keep tabs on labor costs
As a business owner, you probably already know that as much as 70% of a company’s total budget goes to labor costs.
This is why it is so important that business owners keep track of overtime records and other benefits you offer to your workforce to ensure that you avoid over or underpaying. Overpaying can result in loss of net revenue whilst underpaying is a surefire way of ending up with disgruntled employees.
Using either your accounting, payroll or scheduling software, you should be able to keep track of employee hours and make informed changes if necessary.
4. Regularly prepare Profit & Loss Statements
When running a business, it is important that you regularly prepare your profit and loss statements. Your P&L statement summarizes your company’s income and expenses over a given period and although small businesses aren’t required to create them by law, they are a fantastic way for business owners to see whether the business is on track to meet its financial goals.
5. Set aside money for paying taxes.
The IRS can levy penalties and interest for not filing quarterly tax returns on time. Systematically put a portion of money aside throughout the year for taxes. Then note tax deadlines on your calendar, along with prep time if you need it, to make sure you actually make payments when they’re due. Payroll taxes that go unpaid can be especially problematic.
6. Keep a close eye on your invoices.
Late and unpaid bills hurt your cash flow. Assign someone in your organization to track your billing. Then put a process in place for issuing a second invoice, making a phone call and perhaps levying penalties such as extra fees at certain deadlines. You want to have a plan for what happens if they’re 30, 60 or 90 days late. Some entrepreneurs believe that once they’ve sent out an invoice, they’ve taken care of billing. Not quite, every late payment is an interest-free loan and hurts your cash flow.
7. Leave an audit trail.
Your record keeping will be much more effective if you have a system that allows you to quickly and easily retrace your company’s financial activities. This means keeping your invoices and checks in numeric order, not skipping check or invoice numbers, and keeping separate bank accounts for your business and personal funds. If you can’t go back a year and reconstruct your company’s finances, you probably aren’t leaving an effective audit trail.
Running a business is not easy. If it was, then everyone would be doing it!
Accounting is all about using financial data to drive decision making. This financial data is prepared through bookkeeping services. Bookkeeping is the process of tracking your business assets, liabilities, income, and expenses to help you make smart, informed business decisions. This is an ongoing process that should be performed at least monthly. To save time and the headache associated with this, it is smart to invest in outsourced bookkeeping services for your small business.
Computer bookkeeping software is absolutely essential for all but the smallest businesses. These applications make it easy to track income and expenses, prepare tax documents, summarize your company’s financial activities and back up records for safekeeping. Working with outsourced bookkeeping services can ensure your business is using accounting software properly.
Limitless Investment and Capital Small Business Bookkeeping Services in Denver
A key element in starting and growing any business is bookkeeping. It is what differentiates a hobby from a business. The insight derived from bookkeeping and accounting helps business owners make profitable decisions in order to grow. Our professional small business bookkeeping services will help your small business produce useful, accurate data on a monthly basis. Contact us TODAY!