10 Expert Tips for Effective Small Business Bookkeeping
Most small business owners are DIY bookkeepers. They prefer to do bookkeeping on their own. But let us get into reality. Bookkeeping is often easier said than done. Not all small business owners are numbers people, but somehow they power through it. While you can easily manage numbers in the beginning, things may get messy at the time of reconciliation and financial closings. By tracking your finances and maintaining accurate records, you can avoid costly mistakes and ensure that your business is operating as efficiently as possible. Hire cpakpa.com to help you get started on the right track. Our experienced accounting professionals are dedicated to providing quality services at a price you can afford.
If you are a small business owner and a DIY bookkeeper lately missing out on dinners, late nights, and good sleep, this article is right for you. You will find some bits of bookkeeping basics and curated tips for small business bookkeeping for DIY bookkeepers.
Table of Contents
Why Bookkeeping is Significant
Accounting is a vital part of any business. Your accounting greatly depends on your books and numbers. Inaccurate books directly affect the credibility of your records and make your reconciliation process a nightmare. Erroneous records may pull up big scoops of penalties when taxes are filed with incorrect numbers. You need to have precise records to get your accounting done.
Most small business owners who do DIY bookkeeping use accounting software like QuickBooks and Xero to keep tabs on their accounting. However, the software tools do the accounting with the numbers you enter into them. If the numbers are not accurate and organized, you cannot expect to get accurate results from the accounting software. To get rid of this inaccuracy, friction, heachaches and tax penalties, proper bookkeeping is the key. To keep your margins improved, you must focus on your bookkeeping and work on it seriously.
Golden Rule of Bookkeeping
Most bookkeeping professionals suggest small businesses on changes to make in the business along with the bookkeeping part. Bookkeeping is not just about entering precise numbers into books. More than receipts, invoices and bank statements, bookkeeping also keeps track of all transactions related to your business. The last step of bookkeeping is reconciliation. This is where you will know if your records are precise and genuine.
The golden rule of bookkeeping is to make sure all your business transactions are through your business card. Never mix up your personal expenses and other transactions in your business card. Tangling your business and personal expenses pulls up a real mess at the time of reconciliation. So, if you want de-cluttered books with organized records, you must keep your business account separate and use it only for business transactions.
Tips for Better Small Business Bookkeeping
Here are five sure-fire tips for DIY small business bookkeepers to keep your books on sound footing.
Tip #1 – Detach your personal and business finances
Tangling your personal expenses with those of business is the most common mistake small business owners make, especially when they get off the ground. Never commit this mistake, because you will regret it later. Getting a business credit card once you decide on starting up a business is the basics.
When you operate business finances through a business account, your business will be eligible for a lot of advantages. Having a business account, purely dedicated to your business transactions will make it easy for you to track your expenses and apply for tax deductions. Also, with a business account, you will be eligible for line of credit that your business deserves. You can use this fund to fill cash gaps.
Tip #2 – Track every expense
When you track your expenses, you get to have mess-free accounting. Look into each expense, label them and segregate each expense. Also keep tabs on your cash flow. You can consider cashless payment modes like card payments and online payments.
When you go for cashless payments for your business, you will have a digital footprint of every penny spent and received. You can have a clear picture of your expenses and cash flow. Moreover, most online payments offer rewards and cashbacks! You can also sync your payment system to your accounting software with automated bookkeeping tools.
Fumbling with a box full of paper receipts is not a smart way to track your expenses. If cash is the only way of payment for your business, you can store your receipts digitally. Having proper records of your expenses may help you with tax write-offs.
Tip #3 – Keep tabs on income
Just like expenses, you should also have proper records of your income. Make sure to keep tabs on your revenue from sales and other cash infusions. It is easy to lose track of income when it comes to recording them. Failing to record your income can translate into tax penalties. So, make sure you record every dime of your income.
Tip #4 – Perform financial checkups
No matter if you are a DIY bookkeeper or have an accounting software or even a bookkeeper to handle your numbers, you must perform a quick check up at a regular time window. This check up ensures that everything is in good shape. So spend some time with numbers, go over your books regularly and review them. You will come to know what is really happening in your business at any point in time.
Even when you have a bookkeeper, even if you are not a numbers person, have a run through your books. You will know both the positive and negative trends in your cash flow. With this insight, you can formulate strategies and plan accordingly. This financial checkup can help you predict and fill cash flow gaps before they happen and in the month ends.
Tip #5 – Keep a close eye on payables
Payables are also the most important part of small business bookkeeping. Ignoring your payables can cause greater trouble down the line. When you watch your payables prior, you will have concrete plans for your upcoming obligations and due dates.
When you stay in the know of your accounts payables, you get to determine your cash flow in the near future. Improper payables can hurt your credit rating. Your credit rating also reflects on your credibility when your business applies for bank loans and credits. So always keep an eye on your payables and get things in shape before they run out of your hand.
Tip #6 – Monitor your receivables
Receivables are as important to your business and bookkeeping like the payables. Keeping track of your receivables will help you better understand the cash flow you can anticipate in the near future. You can know if you would be able to get enough money to meet your obligations or you need to seek alternative sources.
Tip #7 – Get to grip with tax obligations
Tax seasons come knocking every year. As a small business owner, you have to prepare for your tax filing. When you have preise and organized records, you can better plan for tax write-offs. And you can plan ahead and keep aside some money for your tax bills, by anticipating them prior. When your bookkeeping is done properly, everything goes smoothly and mess-free in the tax seasons.
Tip #8- Bid your paper documents
Paper documents are not just old school, but also very inconvenient and cluttered. Every year, you will need some more room to store your documents. You will have to archive all your bills, invoices and every paper receipt related to your small business.
Moreover, paper records are a hassle to handle and too grunt to maintain. You might unintentionally miss out on any receipt or be unable to locate it at the time of reconciliation. So, it is time you need to digitize your business workflow. Upgrade to digital modes for payments, invoicing and bookkeeping. Also, scan and digitize your paper-based documents to save space, time, labour and headaches.
Tip #9 – Lend a hand from automation
We live in the world of automation. Manual practices are gradually fading out of existence and soon going to be obsolete. It is already high time to embrace automation for your small business. Automated workflow can speed up your turnaround time and makes the process accurate and more efficient.
Even for bookkeeping, you have automation tools like PayTraQer to sync your sales and transactions into QuickBooks automatically. You can connect your e-commerce account or payment system to PayTraQer and sync all your ongoing and historic transactions into QuickBooks as they happen.
Tip #10 – Create financial projection for future years
Even when everything goes smoothly today, you have to make plans for a better tomorrow. You can draw financial projections and predict where your business will stand in the next few years. Generate reports like profit-loss statements and analyse the business patterns and financial standing of your small business. This will help you make better decisions and cultivate strategies with clarity.
Bookkeeping is something that mutely records your everyday business transactions. With proper actions in bookkeeping and accounting, small businesses increase their odds of success to a great extent. Leverage your bookkeeping and scale your business to the next level.