Today, I will be giving you bookkeeping tips to help you better organize your companies’ finances.
If you’re a new business owner or even if you already have a business up and running and want to improve the bookkeeping of your business, then this post is for you!
Bookkeeping for your business is super important and deserves your utmost attention.
I am sure you probably heard the staggering statistic that 9 out of every 10 small businesses fail.
BUT not only that. They fail because of financial mismanagement.
This is really not a surprise to me because most business owners are not CPAs or accountants. And at the end of the day, accounting is the language of business.
So if you don’t understand that language, it makes it harder to conduct business in a profitable, successful way.
That is the unfortunate hard truth of the matter BUT I will say bookkeeping and finances are skills that can all be learned and mastered.
Ok, so to help you avoid the headache and heartache of possibly mismanaging the finances in your business, today I am going to give you 6 helpful tips on managing the bookkeeping in your business and to make the process easier overall.
6 Bookkeeping Tips For Your Business
Bookkeeping Tip #1: Do not mix your personal and business finances.
One of the most common mistakes made by business owners, especially in the beginning, is when they don’t separate their business transactions from their personal one’s.
Well let’s think about this.
Why do you need to separate your personal and business finances?
A. Well for one, your tax accountant will need to see your income and expenses for just the business to file those taxes.
And separating business expenses vs personal expenses is time consuming.
B. There is also a possibility that you might miss out on valuable deductions because you were not able to properly identify them.
Maybe when you were separating business vs personal, you may have overlooked some possible tax write offs.
C. The worst-case scenario is you are going to end up misclassifying personal expenses as business expenses and the IRS catches it.
And then you’ll have bigger issues on your hands which might result in penalties owed to the IRS for the misrepresentation of your business income.
In addition to these reasons, certain entity structures like LLCs and C Corporations are actually required to have separate personal and business accounts according to the IRS.
Having your own business bank account, separate of your personal account:
- Allows you to easily monitor your business expenses
- Helps you in organizing your accounting records
- Helps establish your business credit rating
Bookkeeping Tip #2: Track your business transactions and keep the supporting documents.
So first, make sure to keep your accounting records updated and business transactions all accounted for, whether it is a sale or expense transaction.
By keeping the supporting documents, it will help you to easily track and record the transactions in your accounting records.
It will also serve as proof if you are ever audited by the IRS.
You should hold on to supporting documents for at least 6 years since this is how far back the IRS can audit your tax returns.
Supporting documents includes:
- bank statements,
- wage records,
- tax filings
You need to have a proper filing and archiving of these documents to easily locate it in the future.
There are 3 basic filing systems:
- Paper system – so keeping paper records in a safe and secured place.
- Electronic system on your computer’s hard drive – This will require you to scan or download and save all your documents on your computer.
- Through online document storage – Instead of saving to your computer you will be saving all your documents to a cloud system for safekeeping.
Bookkeeping Tip #3: Keep track of your accounts receivable or AR transactions.
Accounts receivable represents the amounts your customers owe you.
Sales is the lifeline of your business, that’s how you survive.
However, sales is one thing but collecting on your sales is another.
It is very important that you can monitor your outstanding receivables and keep track of the customers that owe you.
For product-based businesses, this is not so much of a concern because usually customers pay for the product before they leave with it.
But if you are in a service-based business and perform services before you collect payment, this tip is critical in maintaining the cash flow in your business.
In order to monitor your receivables, make a conscious effort on following up on your outstanding invoices with customers.
And if you can, offer some discounts on those who make early payments. Or even apply fees to those who pay you late.
Bookkeeping Tip #4: Review your financial reports on a consistent basis.
Whether it’s weekly or monthly, as a business owner, you need to review the company’s financial reports.
There are 2 main types of financial reports you should be reviewing:
- Balance Sheet
This will give you information on the assets and liabilities your company has. This is also where you’ll find any outstanding receivables or payables (vendors you owe) and the balance of each.
- Income Statement
This will tell the sales and expenses you incurred. The bottom line on the income statement is either a profit or loss amount.
Bookkeeping Tip #5- Use an accounting software
Why is accounting software valuable for you?
It will give you the ability to access your financial information anytime in a concise and organized way.
It will allow you to prepare and review your financial statements, as mentioned in tip #4.
You can track your invoices, pay your bills and do monthly reconciliations (ensuring that your accounting records are complete and accurate).
An accounting software should be catered to your business so it is important to customize your:
- chart of accounts
- products and services
…all within the program.
Bookkeeping Tip #6: Outsource Your Bookkeeping to a Professional.
Lastly, on our bookkeeping tips list, after establishing your own accounting software, you might find yourself too busy or just overwhelmed by the task of bookkeeping.
You might want to hire a professional bookkeeper or an accounting firm.
Outsourcing your bookkeeping might be better than actually hiring an in-house bookkeeping because it is cost effective.
Outsourced bookkeepers usually charge a fixed fee based on the hours worked or volume of transactions you have. Compared to an in-house bookkeeper who might require a full-time wage.
In addition, outsourcing your bookkeeping will give you peace of mind that everything is being accounted for and done correctly.
A professional bookkeeper can help do the following:
- Enter and categorize your transactions
- Do the monthly bank reconciliations for your bank and credit cards
- Prepare sales invoices
- Prepare monthly reports
Final Takeaways on Bookkeeping Tips
Alright guys, I hope this bookkeeping tips post helped you not just in maintaining your accounting records but also in running and understanding more about your business’ finances.
And if you’re considering outsourcing your business’ bookkeeping, our amazing team is here to help you out. Get in touch with us today!