Bookkeeping Tips: How is Your Business Performing?
As a business owner, you are likely very busy. With all the day-to-day responsibilities business owners face in managing and running their business, managing the business’s books can feel tedious and it can be tempting to put off bookkeeping responsibilities until another day. Thus, building a consistent bookkeeping practice can be overwhelming.
However, bookkeeping is one of the most important tasks business owners are faced with. Bookkeeping is a vital part of business finances and can impact the growth and success of your business. Routine and accurate bookkeeping can help identify mistakes early, simplify business finances, help you monitor your business’s financial health, and keep your business documents and records organized. Managing your company’s books can involve a variety of tasks – including basic data entry into a software platform and working with accounting professionals.
Here are a few bookkeeping and accounting tips to keep things simple.
Learn the Basics
Many business owners may feel like they do not need to know the tax process or rules if they utilize an accounting software or accounting professional to help with their bookkeeping and tax purposes. However, even business owners who outsource all of their bookkeeping and tax preparation can benefit from having a basic understanding of the tax processes. For example, it might be beneficial to know the tax differences between business structures, such as a partnership versus an LLC, particularly as you are forming your business or your business is growing so that you can better select the business structure that fits your specific needs.
You can find plenty of information on the internet on taxes. Often this will be presented in an easy to understand format so that you can quickly learn the basics without getting bogged down with too many of the nitty gritty details.
Schedule Regular Bookkeeping Times
As mentioned bookkeeping can be tedious and tempting to put-off until later. By scheduling out a recurring and dedicated time to work on your bookkeeping you ensure this important task is accomplished. Additionally, scheduling these bookkeeping times in a regular fashion will help establish a habit to ensure your bookkeeping is regularly done.
It is important you have a dedicated time to review your company’s books, even if you utilize a software that automatically categorizes transactions. A good method for doing this is to schedule you bookkeeping time around the same time your business’s credit card statement is due. This way you can review your credit card transactions to ensure they are accurate while simultaneously checking your books are correct.
Another strategy that goes hand in hand with scheduling regular bookkeeping times is setting reminders for important deadlines. Your business will face several financial deadlines whether they are regular deadlines, such as completing payroll and paying invoices, or less frequent deadlines, like filing taxes. Setting reminders helps ensure that these tasks are completed on time. You can accomplish this by utilizing your email calendar or a reminder/calendar app on your smartphone.
Taking time out to work on your bookkeeping each month will simplify your life come tax season.
Utilizing Accounting Software
Many business owners elect to utilize basic spreadsheets or paper ledgers to track revenue and expenses. However, accounting software programs can make this process significantly easier. Not only are these accounting software programs often cloud based, meaning you can access and update your accounting information from virtually anywhere on multiple different devices, but they can also be linked with your business’s bank and credit card accounts. By connecting your accounting software with your accounts, the software can update automatically, taking the tedious task of data entry and reconciling transactions off your hands.
Additionally, the accounting software program you utilize will likely include invoicing and payroll functionality, allowing you to track your inbound and outbound transactions. Finally, accounting software programs run reports for you, which often involve complex calculations when done by hand, which provide your business with valuable insight into its finances.
Choose an Accounting Method
There are two types of accounting methods to choose from, cash- or accrual-based accounting.
Cash-based accounting is an accounting system that recognizes revenues and expenses only when cash is exchanged. This method does not record invoices or outstanding bills until they’ve actually been paid. Cash-based accounting systems do not consider income from credit accounts.
Accrual-based accounting is an accounting system where revenue or expenses are recorded when a transaction occurs instead of when payment is received or made. This method allows the current cash inflows or outflows to be combined with future expected cash inflows or outflows to give a more accurate picture of a company’s current financial position.
Keep Personal and Business Accounts Separate
Having a separate business bank account may not seem necessary at first, particularly for small businesses, however, having accounts for personal and business finances can greatly simplify bookkeeping; and is required in some cases, depending on your business structure. This separate account will make it easier for you to sort through transactions relevant to your business and save you time and effort.
You may also want to consider opening a separate credit card for your business. This has all the same benefits as a separate business bank account and also allows your business to build its own credit rating.
Keep Detailed Records
No matter how much time you spend on bookkeeping or how accurate you are your business may still end up being audited. Keeping documentation of all of your business’s purchases and sales will help in the audit process by proving that the transactions in your books are accurate. Detailed records will also help you retrace your steps to find any inaccuracies, should they occur.
Outsource to a Professional
Cloud based accounting services make things easier for business owners who elect to handle all of their bookkeeping themselves. However, that does not mean that you shouldn’t hire a professional bookkeeper. Outsourcing your business’s bookkeeping responsibilities has several benefits such as saving you time, ensuring that your books are always up to date and organized, guaranteeing that your books are tax compliant, and potentially even saving you money.
No matter what bookkeeping strategy you use, whether you are doing your bookkeeping entirely yourself or have outsourced bookkeeping to a professional it is important that you establish regular bookkeeping habits. This will help ensure your business’s financial health, allow you to have a better understanding of your business’s cash flow, lead to few issues come tax seasons, and help your business grow.