20 Apr 2019 Bookkeeping Tips for Small Businesses
Every business should have a systematic bookkeeping practice. This is the best way to keep track of your business activities and your finances—earnings, expenses, losses and all other business-related fiscal matters. The success of a business will depend on how well a business owner manages his finances. And recording is one of the most important aspects of financial management. This will help you, as a business owner, handle debts, credits, income and other financial activities. Without a proper recording, the business might end up bankrupt before you realize it.
Bookkeeping, when done properly, will give you a chance to make a mathematical assessment on the financial soundness of the business. When you have an idea of how the business is doing, then you have a more methodical way of improving its financial status. As a small business owner, this is even more crucial. Obviously, a small business doesn’t have felicitous economic footing yet. Many successful business owners credit proper financial recording as the key to their business triumph.
Here are some bookkeeping tips for small businesses.
Prioritize your book
On the outside, people would think that business owners should be focused on the management and the operations of a business—especially when it is a small one, meaning, there are not a lot of staff members to handle operational matters yet. That is actually the wrong approach. Of course, that doesn’t mean that you don’t put a lot of effort in running the business since the books need prioritization. This just means that your books will be very helpful in how you actually run the business. The tips below will have some justifications on why giving prominence to bookkeeping is actually logical.
Monitor and follow up business invoices
What’s the point of operating a business if clients do not pay you on time? So always keep track of your invoices. Be relentless: send out invoices early, remind clients of the invoice a few days before the due date and on the due date itself. Invoices that are not paid on time or not paid at all will hurt your cash flow. Even if the payment was just a couple of days late, you have to realize that every day, your business incurs expenses. Those dues that were scheduled on certain dates are expected to already be allocated on certain expenses. Your clients should not be allowed to sit on YOUR money. And if they delay in paying their due, then you must impose a penalty—of course, make sure that this is stipulated in the contract.
So if you’re books are in shambles, there is a tendency that you cannot monitor all invoices. When that happens, you might as well have thrown away YOUR money.
Separate personal and business finances
For sole proprietorship businesses, there is a higher chance that owners will not be meticulous about personal and business expenses. Business owners may argue that every financial bit in the business is theirs anyway, so why keep the separate recording of personal and official spending? Separating them will help avoid confusion. You want to know how much the business spends every day, which is why this needs to be tracked separately. You also want to know how much money is coming in in the business side, which is why all income should be recorded separately rather than be counted along with your personal monies. You can apply for a business credit card so that all official or business-related expenses will not be swiped on your personal credit card. Treat the business as separate from you—a different entity.
Separating business and personal expenses also has another advantage come tax season. Filing a tax return becomes less simple when you own a business. But if you have a separate recording of your financial activities, then filling out the Internal Revenue Service form becomes a breeze.
Review your books regularly
Do you think you can handle reading and reviewing your books every day? That might be too much for a businessman who works to keep the business afloat and make it successful. But if you can, then that would be best. A more realistic timeline though is every week. Study your books weekly so that you will be updated with the financial status of your business. Are you in debt? Are you making little money? Are you making a lot of money? Answering these questions will guide you through strategies and game plans that will help you improve your business’s fiscal status. When you know your expenses weekly, you will notice a trend. When you do, it will help you craft techniques that could lower your expenses. This way, the money saved will be translated to income for the business.
Monitoring your books regularly will also help you keep track with invoices. Don’t let clients get away with sitting on YOUR money! You will also know your daily and weekly income. This would make it easier for you to predict trends—when is the peak time for your business? When is the business at its slowest? Knowing all these things will allow you to project and prepare. So if you notice that your business is slow every Wednesday morning—what could you do to change that? Maybe slash the prices of products or services around that time?
Simplify your books
There are two choices: chart and software. You can have both. Actually, having both is really smart. This is like doing a book report in university—you want to have a soft copy as well as a hard copy just in case something happens to the other copy. Anyway, a chart will help you simplify your recording of finances. Most simple charts use the following categorization: assets, liabilities, revenue, expenses and owner’s equity. All these will give you a complete picture of how the business is doing.
Now, since you’re not really a bookkeeper—well, unless you are—then you might want to leave the actual accounting to the computer. In this day and age, that will be in the form of software. So while you have your actual book, the hard copy, input all these things in the software as well. This way, you will have both soft and hard copies. The great thing about the software is that it will be able to compute financial matters easily and quickly. Make sure you get a software that is easy to use. Consult an expert, like an accountant, on which software will be best for a small business owner like yourself.
Fix mistakes ASAP
When you see a mistake in your books, correct it right away, lest, that $1 mistake will become $100 in a week or two. This is also the importance of tip #4. When you regularly assess and analyze your books, you will spot the mistake before it balloons. Since we have already established that a weekly monitoring of the books is ideal, then correct errors as you see them every week. Mistakes might be harder to spot in the long run. Even worse, it may be harder to solve when the problem has already ballooned.
Consult a bookkeeper
Always seek the advice of an expert. While you know your business best, they know numbers better. Things will be easier for you when you have assistance. This type of aid will come in handy during tax season. But don’t wait until tax season to approach YOUR accountant. There is an emphasis on having your own accountant here because it is advisable that you have an accountant on retainer so that you don’t have to explain the business and your financial history every time you seek out an accountant. Having a retainer means the accountant is already familiar with your business and its financial standing the past months and even over the years. Another advantage of this is that the accountant will also develop some sort of attachment to your business that it would seem like the accountant will look at your company from the eyes of an aunt or uncle. Your accountant will also feel a swell of pride when your business gets better and bigger.
You might ask why you still need an accountant when you already have your meticulously recorded numbers in the books, and reliable software to boot. Well, a software cannot really give you a piece of advice on accounting and tax matters. A reliable accountant can help you set up a good bookkeeping system as well as give you advice about financial and accounting matters.
That’s the thing about bookkeeping—it may seem like just a recording of all financial activities of your business, yet, so many things come out of it. With your books, you get to manage your finances really well and you get to conceive tactics that will make the business better. Bookkeeping may look like columns and numbers, but it is actually a tool for the constitution of game plans, business approaches and strategies that will mould a successful business.