There is no shortage of details to consider when you’re a small business owner. Now, it’s time to hit the books. Getting the back-office basics of your small business accounting practices in order early on—tracking revenues, expenses, and profits—will keep you out of the weeds of paperwork and cash flow snafus, and let you focus on the important work of growing your business. Although small business bookkeeping is not the most thrilling business activity, it is important that every owner keep track of their finances.
Many small business owners are able to get away with keeping their own books in the beginning. But, as your company grows and tax time approaches, you might feel a little bit lost. Fees for incorrect tax filing or messy bookkeeping can be high, not to mention the time you spend in correcting errors.
Before running into bookkeeping and tax compliance issues, consider hiring a small business bookkeeper, or automate your accounting practices with one of the many business accounting software tools available to you.
In this small business bookkeeping guide, we will go over the three most important financial statements, as well as some tips for small business bookkeeping:
Small Business Important Documents
- Income Statement: An income statement shows the revenue and expenses your business experienced during a particular accounting period. Essentially, it lays out how much money you made and how much you spent, ultimately showing your business’s profitability. A lot of business owners will separate their expenses into different categories so they can pick out specific areas where they need to be more careful when spending. Separating expenses is not necessary, but it can be helpful when trying to better understand your business.
- Balance Sheet: A balance sheet is one of the main financial statements that report a business’s assets, liabilities, and shareholder’s equity. It shows how much a company owns, how much it owes, and the amount that has been invested by shareholders. While it is easier to keep track of loans and how much money has been invested in your business, managing assets is a different story. Consider using asset management software to keep track of what your business owns.
- Cash Flow Statement: A cash flow statement is a financial document that shows how much money is moving in and out of a business. It shows how a business handles cash, meaning how well they pay off their debts and fund their operations. That ending cash balance, or net cash flow, is the increase or decrease in cash your business experienced in that accounting period. Whether or not you have a positive cash flow will show outside entities how your business has grown financially.
Small Business Bookkeeping Tips
Some small business owners love going over their books — after all, it’s their personal scorecard of how well the business is doing. Others dread dealing with numbers or get so caught up in day-to-day operations that they neglect their bookkeeping. Whether you love it or hate it, good bookkeeping is essential to small business success. Here are some small business bookkeeping tips that will help put your business in the black.
1. Go Digital
Bookkeeping software simplifies what used to be a tedious process of entering data into spreadsheets and reconciling figures manually. Cloud-based bookkeeping software goes one better by ensuring that your critical financial data is backed up to the cloud — no more worries about a crashed hard drive wiping out your books. Plus, by banking online and syncing your bookkeeping software with your business bank account, you can ensure your books are always up-to-date.
2. Do a Weekly Checkup
If you aren’t a numbers person, your natural tendency may be to put off the “boring” part of entrepreneurship as long as you can. 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 everything is in good shape.
3. When Reconciling, Fix Mistakes Right Away
It is a mistake to not reconcile monthly but an even bigger mistake to not fix errors right away when you notice discrepancies. Even if it is $0.01 between the books and what’s in the bank fix it right away or this error will carry over to other months and be a lot harder to solve later.
4. Make a Plan for Major Expenses, yes, Even Taxes
By simply budgeting for major expenses, like taxes, inventory, repairs, and maintenance will save you a lot of stress when these expenses appear. Don’t pretend like these things won’t happen and your accountant can help you anticipate an accurate percentage of your revenue to set aside for taxes. Plan to spend the money in the future and set aside a contingency. This way when the expenses appear your business won’t take the hit for an unexpected expense.
5. Don’t Wait Until the End of the Year to Visit Your Accountant
By keeping in touch with your accountant will make sure that any small business bookkeeping issues are caught and taken care of. Although accounting software can enable almost anyone to keep track of their business finances, having a good accountant is still necessary as they can give opinions beyond setting up your accounting system. They will help you manage your business from the beginning; with everything from making an effective business structure, to payroll and, most importantly, taxes.
Small Business Accounting: Keep Your Business Growing
Finance is the backbone of any business, so these small business accounting tips and tricks are essential to business success. Get in touch with an accountant if you don’t already have one, and ask them for the best place to get started! By following these accounting tips for startups and established businesses, you’ll ensure that your company is financially healthy now and for many years to come.
Limitless Investment & Capital Small Business Bookkeeping Services in Detroit
Have a trusted advisor by your side! We do the bookkeeping while you run your business. Our small business bookkeepers in Detroit help businesses: Review your existing account, categorize transactions, account reconciliation, organize statements, collaborate with your accountant, give insights and plan for your small business. If your books need a closer look, contact us, TODAY!