01 Mar 10 Practical Bookkeeping Tips for Small Business Owners
It is essential that bookkeeping for small business should be done in an accurate and timely manner to enable business owners to keep track of how their business is doing. Proper bookkeeping will help business owners come up with the appropriate operating, investing, and financing decisions. Maintaining an accurate set of books is also necessary to comply with the requirements of external stakeholders such as the government, financial institutions, and investors.
If you are a small business owner, below are 10 bookkeeping tips to bear in mind so you can make the most out of your business:
Keep all records well organized
Retain pertinent documentation of financial transactions for bookkeeping and tax filing purposes. Set up a system to organize your receipts and other financial records in a way that they can be easily accessed during such time you need to update your books.
Set aside your personal finances
Separate your personal finances from your business. Open a separate bank account for your business so you can easily track and categorize your transactions. This will save you from the trouble of trying to recall if that purchase was business-related or not.
Create a simple Chart of Accounts
Keep it simple but intentional. Consider the nature and needs of your business and set up only the accounts that you need. Select the correct account type (balance sheet versus income statement) for each account to make sure that there will be no errors in the resulting financial statements. Don’t over-categorize. Visualize the kind of meaningful financial data you want to see at the end of the month and structure your accounts and transaction types accordingly.
Keep track of financial data on a monthly basis
Don’t just track annual figures. Tracking your income and expenses monthly will help you see the trends and spot fluctuations in a timely manner. You will then be able to immediately act on areas that need improvement or invest more in items with higher returns.
Go digital with the payroll
Simplify timekeeping and payroll processes by storing your employee records in the cloud, and importing hours directly into payroll and accounting software.
Document and deduct expenses that are for personal/business use
If you use something for both business and personal purposes (such as a mobile phone or a car), you can deduct a percentage of the expenses on your tax return, but it depends on how it’s used for the business. Document call logs and track your mileage in details so you can maximize your tax deductions.
Detailed inventory records are extremely important
Proper inventory management will help you prevent any loss or misplacement of items/ merchandise. Keeping detailed records will also help you track the levels of your purchases and sales so that you’ll know which items sell best and you’ll never run out of stock.
Prepare for major expenses including taxes
Forecast and create a budget for major expenses, including tax expenses. You can set aside a certain amount each month corresponding to your monthly sales to make it more expedient to settle your taxes. It also wouldn’t hurt to set aside a contingency to help ensure that your business will continue operating should unforeseen expenses arise.
Resolve errors right away when reconciling
Reconcile your accounts every month or at least each quarter. Don’t leave any discrepancies between the amount that’s in the bank and that’s in the books. Investigate where these reconciling items are coming from and correct them immediately.
Go with QuickBooks
QuickBooks (by Intuit) is a great tool to use and incorporate to make bookkeeping a breeze.
Doing your books 2 minutes every day is a lot better than doing it for 4 hours once a month. You can set it up yourself or hire someone to do it for you.
Good bookkeeping for small business owners is a key element to successfully running a business and managing cash flow. Incorporate above tips into your bookkeeping process now (or regret it come tax time).