When you’re running your own small business, it’s crucial to make sure you’re keeping accurate records of your financial information. You’ll want to track all the money coming in and going out and ensure every dollar is accounted for.
Neglecting to tend to your bookkeeping could lead to serious consequences: cash flow issues, poor business decisions based on inaccurate data, missing records in an IRS audit, and snags in paying taxes. Not to mention all the extra time and money you’ll spend reconciling numbers and balancing your books.
To avoid these and more serious issues, here’s how to stay on top of your small business bookkeeping.
Separate Your Personal and Business Finances
When you’re just starting out, it might seem easy to keep track of your personal and business expenses together. But even if you’re a new small business owner, keeping your personal and business financials separate now will save you heaps of trouble down the line.
If you don’t, you might find yourself in a headache-inducing situation trying to make sense of your neglected financial records. Plus, inaccurate records means money you might lose when paying Uncle Sam, or late filing penalties. And in the rare case that you’re audited, having your financials in tip-top shape will definitely pay off.
If your business is a separate legal entity, such as an LLC, nonprofit or S Corporation, you’ll need to open a separate bank account for your business. In these cases, it’s critical to keep your business finances separate so you don’t incur personal liability for any business debts. If you use a credit card, you’ll want to have a separate one for your business for the same reasons.
Use Bookkeeping Software
Unless you’re an accounting ninja, keeping track of your financials with a spreadsheet, calculator, and outdated software most likely won’t cut it. Instead, using current bookkeeping software will help you keep your financials organized and accurate. The good news is that many popular accounting software services offer a free trial, and they might even provide free webinars to learn accounting basics.
Make Small Business Bookkeeping a Habit
Whether you’re an army of one with a handful of clients or a medium-sized enterprise with 40 employees, you need to turn small business accounting into a habit. Organizing your books now will help you avoid waiting until your financial records morph into an insurmountable mess.
For instance, if you’re just starting out or running a small operation, try sending out invoices every week. You’ll also want to make sure all your transactions are properly accounted for and categorized. As for monthly tasks, try to make payments to your suppliers and vendors at month’s end on a set schedule.
To make your bookkeeping as easy and painless as possible, create systems and workflows to boost efficiencies. Look for ways to automate and batch processes to save man-hours and money. Technology can also be your friend — look for software and equipment that can help you make things simpler and quicker while reducing errors.
At least once a quarter, check to make sure the systems and processes you’ve had in place are efficient. If not, what is the underlying issue, and how can it be resolved? You’ll also want to analyze data, such as sales and inventory information, to pinpoint patterns and trends. When are the peak seasons and slower times for your business? This will help you more accurately create a financial forecast and drum up solutions to cash flow issues before they arise.
Even if you’re fully aware how important small business accounting is to the success of your company, it’s easy for it to fall by the wayside. You’ve got so much to tend to: profit and loss statements, financial forecasts, end-of-year reports — but this task is worth emphasizing. You’ll want to ensure that your small business accounting stays top of mind.
While you might be more likely to focus on accounts receivable to see all that money coming in, it’s important to pay close attention to your accounts payable as well — and keep accurate records on all fronts.
When it comes to small business bookkeeping, there’s no cut-and-dried formula; your business accounting needs are unique to your company. But by implementing systems and looking for ways to be more efficient with maintaining your financial records, you’ll be able to stay on top of your accounting.
Seek Professional Help as Needed
If you’re swimming in a sea of late invoices and sloppy financial records, you might want to consult with a professional bookkeeper. Whether you want to schedule a one-time consultation or hire them to tend to your financial records long-term, it might be a worthwhile investment to save yourself the struggle.
There are plenty of resources to help your company thrive. Incfile can also help file your business taxes if you’re ready to bring in professional help getting your accounts in order.