For most small-business owners, keeping the books isn’t a highlight. They prefer to focus on improving and expanding their core business. Bookkeeping? That’s a chore. Yet, running a successful business requires effective bookkeeping.
As a small-business owner, you might not have the budget to outsource your bookkeeping responsibilities. Instead, you have to learn how to survive without a full-time bookkeeper, balancing your time between nurturing your business’ core values and recording, monitoring and tracking your business’ finances.
Here are five tips for small business bookkeeping.
What is the purpose of bookkeeping?
Before getting started on a good bookkeeping system, it helps to understand how these financial records fit into your business. With a clear picture of how much money your business makes and expenses on a daily, weekly, monthly, yearly basis, you can better evaluate what’s works and what doesn’t.
You may discover one product using more resources than it’s bringing in profits, it may be time to cut that product. If another product or service produces high profits one month and remains consistent in the next few months, you can look at what you did differently and expand your opportunities from there.
An effective bookkeeping system can also help you meet budget goals and evidence of a stable, well-managed business if you ever need support from banks or other sources of capital.
Make bookkeeping a part of day-to-day business
Accurately keeping track of your business requires recording your finances on a daily basis. Find a bookkeeping system that works for you, and then set aside time each day to record your cash and credit sales, accounts receivable and accounts payable, and detailed summaries of transactions.
When bookkeeping becomes a routine part of your business, it gets easier with time. Once tax season arrives, you’ll want those records to prepare an accurate income tax return. The more organized and up-to-date your bookkeeping system, the less you’ll have to spend on accounting fees, and the less frustration you’ll have to endure come tax season.
Use the right bookkeeping app
Accounting software programs make it easy to automate the bookkeeping process. These do everything from tracking purchases to analyzing purchasing trends. FreshBooks, QuickBooks, and Sage Peachtree are accounting programs that offer products catering to various business types. If you’re a small startup, you probably want to choose the most basic package, and upgrade as your business needs grow.
Be aware that accounting software programs still require a great deal of training and education to use properly. Attending a workshop can really help you better understand how to get the most out of the program for your specific business needs.
Once you’re set up and ready to start automating bookkeeping procedures, you can integrate the program with your payment process to further streamline the business. If you have a merchant account provider, find out if it can synchronize your merchant account with your accounting software to avoid double data entry and receive reports that are more accurate.
Manage your bookkeeping paperwork
You need to keep those receipts and documents for your records. The key is to stay organized. Maintain a clearly labeled filing system sorted by product lines, expenses, clients, date – whatever works best for you. Protect important, confidential files in a fireproof safe.
You can even scan your paperwork to import directly into accounting software, so you can keep all your files in one place and find them quickly.
You may not have to worry about piles of paperwork as much anymore since more businesses have gone paperless. Sign up for automatic withdrawals and deposits with your bank and electronic invoicing with suppliers or utility companies. Provide your customers with paperless options to minimize billing costs and better organize invoicing details.
Also, consolidate your vendors whenever you can. For example, with a credit card processor that offers all the services you need, you’ll receive just one statement for services like payment processing, recurring billing and terminal rentals – rather than three different statements from three different companies.
Don’t mix business with personal accounts
Keep your personal accounts separate from your business accounts. Using business funds to pay for personal purchases complicates the bookkeeping process and filing taxes. If you’ve given employee access to credit cards and account numbers for office spending, monitor those purchases to limit inappropriate purchases and maintain control over your finances.
With the right software, a bit of organization, and daily maintenance of your finances and paperwork, bookkeeping can turn into a simple routine. You can do it on your own, and use the money saved from not hiring a full-time bookkeeper toward something to grow your business. Just remember to record it in the books.
About the Author: Jacqui MacKenzie is a writer for Straight North, a premier Chicago Internet marketing agency that works with BluePay, a leader in small business credit card processing solutions.
I started my first business twenty years ago. I did my own bookkeeping and learned as I went. Twenty years later I have three businesses and still do the bookkeeping myself. The ideas outlined in this article fit my experience and are excellent advice. Even if you eventually hire a bookkeeper, the understanding you gain from doing your own bookkeeping will give you a solid foundation for understanding the finances of your business. If you are in business to make money, good bookkeeping is a vital part of making it happen.