With 27.9 million small businesses in the United States, you need your business to stand out from the crowd. Great customer service and an excellent product or service can wow your competition, but so can running a tight ship.
A business that’s financially sound has a much better chance of providing top-notch products and services and keeping customers happy. And the best way to make sure you are fiscally responsible is to keep a close eye on your bookkeeping.
Whether you enlist a professional accounting firm or not, we’ve got our six top bookkeeping tips for small businesses.
1. Stay Organized
The best thing you can do for your business (and your sanity!) is keeping organized records and detailed financial notes. Start with the simple things – like making sure your checks are written in numerical order.
Also, create a system to categorize your expenses. If you want to maximize tax write-offs, a readable and easy-to-understand chart of accounts is one of the best small business accounting tips we can offer. You can use Excel and do it manually, or a cloud-based service like QuickBooks.
Stick to a functional system that abides by generally accepted practices and works best for you. Bonus points if you are organized enough to hand over your finances to your accountant at tax time without making them sweat!
Pro Tip: Keep your petty cash receipts. Make sure they are logged somewhere and scanned into your computer. And if you’re not cloud-based, never forget to make backups of your files.
2. Separate Your Finances
Similar to staying organized, it’s absolutely necessary to keep your business and personal finances separate. Use separate bank accounts (or separate banks!), separate credit lines as often as you can.
There’s really no need to muddy the waters between your personal finances and your small business – and this basic bookkeeping practice will help you at tax time.
If this becomes difficult for you not to double dip, consider making your business official. Starting a limited liability corporation (LLC) or an S corp will help you enforce these financial boundaries.
3. Reconcile Every Month
When you start your business accounts, start them off right. Your small business will perform better if you know your financial position at any given time.
Every month, take your bank statement and a statement of your accounts (see Step 1) and make sure they match up. It should be part of your standard bookkeeping practice to double check your bank. You might be surprised at the number of potential errors or mistakes you find!
Reconciling your accounts seems like it could be unnecessary, especially if your business hasn’t had much activity in a given month. But don’t be fooled. It’s one of the easy bookkeeping tips that people often ignore.
Knowing your financial position and making sure your expectations match up with reality is invaluable to your piece of mind. And it couldn’t be easier!
4. Plan Ahead for Taxes
While you’re reconciling your account, take a look at your tax plan. Do you pay your taxes every month? Every quarter? Once per year?
Small business owners usually remit tax payments quarterly to the IRS. You can hire a CPA or accounting firm to help you prepare and submit your tax documents and payments.
Take care of cash flow issues before each quarterly payment so that you can file and pay with ease. This could mean inventory management, proper reconciliation practices, or making sure you have planned ahead properly. Setting aside about one-third of your revenue for taxes is a great start for sole proprietors.
Find out what makes the most sense for you, and make sure you stay on a schedule. Set alarms, calendar alerts, and get an accountant that will help you. Financially planning ahead, and planning the time it takes to do your taxes correctly will save you money, time, and can bring you peace of mind!
5. Cash vs. Accrual
Before you get too far down into your bookkeeping practice, make sure you know what kind of business you run. There are two major types of accounting. How you log your expenses and income will determine which type you will use.
Cash accounting makes everything quite simple and can be elegant. With cash accounting, you reconcile monthly and yearly with ease. Every time money changes hands, you catalog it in your ledger.
Accrual basis accounting works well for businesses dealing with grants, loans, and certain asset classes. Accrual basis accounting logs expenses as they happen, and not when money is exchanged. Small businesses can run efficiently on either type, but accrual accounting is considered the standard.
Very small businesses – such as freelancers and those with a “side-hustle” – may prefer to rely on cash basis accounting.
6. Make Audits Easier
Start yourself an audit trail. Make it as easy as possible to search through transactions for easy bookkeeping. Performing a self-audit is recommended, as you can learn how to minimize unnecessary expenses and otherwise shave costs.
But even if you’re waiting on an outside agency, your CPA, or the IRS to audit you – creating readable records that are easy to access and understand is always good for business.
Start with an organized chart of accounts, and decide whether you’ll be accounting with cash or on an accrual basis. Keep your records chronological, and don’t be afraid to use a program like QuickBooks or keep your notes in Microsoft Excel.
Keep invoices filed properly, and make sure to write checks in sequential order. The more favors you do for yourself along the way, the easier your audits will be.
Bookkeeping Tips Aren’t Enough
Whether you’re a seasoned professional at small business accounting or a newbie who needs more bookkeeping tips, you are not alone. A professional CPA can help with every aspect of your tax planning.
Hiring an accountant means you will have the best chance of maximizing deductions and submitting perfectly prepared documents to the IRS. Even if your business has no employees, it’s imperative to get the correct figures to authorities to avoid fines.
We’ve got more bookkeeping tips for tax preparation season for those that
