11 Tips for Better Small Business Bookkeeping
If you can tolerate the missed dinners, late nights, and lack of sleep, your dedication will surely help you cut expenses and accumulate cash. Instead of paying professionals to do your small business bookkeeping, you can put your money to work buying products and materials and paying your workers to produce more goods to sell. Eventually, the money you save will help your business grow a little at a time.
If You’re Going to DIY Your Bookkeeping, We Want You to Get it Right
Many small business owners do their bookkeeping. They ask themselves Why would I need a bookkeeping consultant? Often, they have no bookkeeping skills, but they power through it one step at a time. If this makes sense for your current circumstances, you should do it too.
As professional bookkeepers, we know that DIY bookkeeping is often easier said than done. We want you to get it right, so we’re providing 11 Small Business Bookkeeping Tips to help you meet this critical challenge.
1. Make Everything Easier with The Right Technology
If your business is new or your bookkeeping software is old, it’s time to take a look at the latest technologies. The discussion about Digital Bookkeeping vs Paper Checks and Snail Mail Invoices is over. When properly matched to your business needs, digital technologies help you complete small business bookkeeping functions faster and better than traditional techniques. You can find a wide range of bookkeeping apps and software to run on your computer, tablet, or phone. Most apps are fully customizable to meet your business needs. On a phone or tablet, they’re portable so that you can do your bookkeeping work anywhere.
After the initial setup, bookkeeping software and apps manage, sort, and sync uploaded financial data. They also track material costs, sales, receivables, payables, labor costs, and more. Bookkeeping software helps you to reduce your paper dependence by transitioning your business to digitized financial documents. Digital systems save time and money. They automate financial reports and store your documents and data in a secure cloud environment.
Small businesses have increased their use of digital tools over the past several years, yet some companies would benefit from greater technological engagement. A Deloitte small business study, “The Performance of Small and Medium-Sized Businesses in a Digital World,” found that while small businesses are more engaged with technology, approximately 60% are still at a “basic” or “intermediate” digital level. Around 40% of small businesses function at “high” or “advanced” levels of digital proficiency.
Businesses designated as basic or intermediate still rely on a mix of traditional and digital business methods. At the basic level, companies aren’t likely to use any digital marketing, internal management tools, or cloud-based applications. The Deloitte researchers see this as a concern as they determined that when businesses use more digital tools, they perform better in areas related to customers, finance, jobs, and innovation.
2. Get Help Setting up Your Bookkeeping Software
When you manage your finances using bookkeeping software, it’s easier to keep track of your company’s cash flow. Bookkeeping software does a great job of tracking and syncing your financial and business data… as long as you set it up correctly.
Software companies simplify their bookkeeping software and apps so anyone can use them, but they’re still based on genuine bookkeeping principles and practices. To get the most out of your software, you should work with a bookkeeping professional to make sure it’s set up correctly. In case you need future assistance, maintain contact. Explore new ways to incorporate important business data streams.
- Employee/Contractor time-tracking
- Digital banking and account synchronization
- Digital customer billing
- Digital product inventory
- Accounts receivables and payables
3. Separate Your Business and Personal Expenses
Separating your business and personal money is Business 101. Although it seems like an easy enough task, it can happen accidentally or intentionally. It’s easy to mix your personal and business expenses when you carry multiple credit or debit cards. You can pull out the wrong credit card while buying lunch, filling your gas tank, or paying for supplies. You can charge a business expense to your personal account with the intention of straightening it out later.
You’ll have to sort out the details by tax time, of course. But when you’ve used a personal account to pay multiple business expenses, it provides an inaccurate sense of your business cash flow. It’s the same when you use your business account to make personal purchases.
Until you adjust your records, you won’t have a clear picture of how your company is doing financially. If your credit or debit account data syncs automatically with your bank records, your financial reports will remain inaccurate until you make the corrections.
4. Review Your Financial Reports Regularly
Whether you work with a manual or automated bookkeeping system, you must take time to review the numbers. Your bookkeeping data gives you a critical snapshot of your company’s financial health. Even if you have a bookkeeper tracking your finances, you must still know what’s going on with your money.
Bookkeeping software generates financial reports. The reports organize your financial data in a format that makes it easier to spot positive and negative trends and take the appropriate actions.
- Income statements
- Balance sheets
- Cash flow
- Accounts receivable aging
- Accounts payable aging
5. Monitor Your Payables and Receivables
Even if you’re busy, you must set aside time to review your financial reports and take any required actions. Your accounts payables and receivables track the cash that you anticipate will flow in and out of your business in the near future. It’s essential to stay on top of the numbers so you can notice and correct any trends before they get out of hand.
When you monitor your payables, you can plan for upcoming obligations, due dates, and payment amounts. Delinquent payables can make or break your business credit rating. They can also restrict your company’s access to future bank loans and credit from suppliers.
Receivables allow you to anticipate a future influx of cash from your customers. You’ll know if you have enough incoming money to pay your obligations or if you need an alternate funding source.
Receivables aging data shows your customers’ delayed or delinquent payments. The information helps you determine if a customer is a reasonable credit risk. It also gives you notice so you can make timely decisions about altering your credit policies or initiating collection actions.
6. Plan for Your Tax Obligations
Tax season comes around every year. It should never take you by surprise. When you keep accurate records and track your data, you’ll have a better idea as to your upcoming tax obligations. You can set aside the money for your tax obligations a little at a time or file a timely extension request.
The IRS provides a calendar to help small businesses and independent contractors track their tax obligations and stay current with required payments.
7. Keep Accurate Employee Records
If you hire a mix of employees and subcontractors, it’s crucial to maintain accurate 1099, W-9, and other tax records. Improper employee classifications are a big IRS no-no. They’re always on the lookout for employee vs subcontractor misclassifications.
<p>The IRS recognizes that sometimes an employee misclassification is a mistake. They also realize that it can be intentional. Employers sometimes misclassify employees as subcontractors to save on employee sick pay, health insurance, worker’s compensation, unemployment benefits, and other costs.
The IRS Voluntary Classification Settlement Program gives employers an opportunity to reclassify independent contractors to their correct employee status. It also provides partial relief from employment taxes owed.
8 Get rid of paper documents
Paper documents are often cumbersome, messy, and inconvenient. The longer you’re in business, the more storage space you need to accommodate your snail mail invoices, bills, and other documents. Paper is also easily destroyed by water, fire, and other hazards. When you digitize your records, you can save space and synchronize bills, invoices, and receipts with your digitized bookkeeping accounts.
9. Have a Data Disaster Plan
No matter how you choose to handle your bookkeeping, you need to protect your financial data in case of disaster. Your disaster plan should include a secure method for backing up your documents at an offsite location.
A cloud-based storage system is the most efficient way to accomplish this. If a fire, flood, or other disaster damages or destroys your workplace, a cloud environment provides secure offsite storage that protects your digital backup.
While cloud storage is especially critical if you rely on paper documents, it’s also important if you store all of your bookkeeping data on a local computer. Your authorized company employee can access and restore your records from any digital device.
10. Learn How to Do it Right
It’s hard for some small business owners to let go of their DIY enthusiasm. If you insist on holding on to your bookkeeping responsibilities, you should consider professional training.
You probably have too many items on your plate to take a bookkeeping course at a local university. Fortunately, the Small Business Administration offers time-saving online training courses for bookkeeping and other necessary small business skills.
The Service Corps of Retired Executives (SCORE) conducts local and regional bookkeeping workshops and maintains an online library of small business resources.
11. Let a Professional do Your Small Business Bookkeeping
If you’re running a startup and need to conserve your cash, it makes sense to do your bookkeeping (and everything else) on your own. It’s one way to save money to reinvest in your business. Once you move your business beyond the lean days, you should consider handing over these time-consuming tasks to a small business bookkeeping professional.
We Are Bookkeeping Professionals
At Goode Bookkeeping and Consulting, we offer small business bookkeeping, cloud storage, Quick Books management, and many other services for your small business. Also, we’re professionals, and we know all the ins and outs. That’s really important.
Contact Goode Bookkeeping and Consulting at (860) 659 6543 or visit our contact page to schedule a free consultation.