For a small business, keeping books can be an overwhelming task. You don’t want to spend too much time on it because you have other things to do, but you also need the information in order to make good decisions about your company’s future. There are some simple ways that you can keep your records organized and up-to-date without spending hours doing so each week in the “how to keep books for a small business” article below.
How To Keep Books For A Small Business?
1. Pay Close Attention to Receivables
The most exciting aspect of owning a business is getting paid. It’s not as fun managing your receivables. You record a receivable when an invoice is issued. This means that you track the amount of money owed to you by a customer. This listing allows you to see if there is an outstanding balance.
The customer should pay you the amount and mark it as paid when they pay. This can be not easy when trying to keep up with many orders. Because there are always enough hours in the day, customer deposits are often left unreconciled. This means that you will have many customer deposits in the revenue account and a report on your receivables that don’t match when it comes to tax time.
This can lead to you spending hours updating your listing and overpaying on your tax return. You will also end up with high debts. It would help if you made it a habit to track all transactions as they occur. It can save you a lot of time and money in the long term by applying for your customer’s monthly payments.
2. Keep a Pulse on Your Cash Flow
Education is key when it comes to accounting tips for small businesses. You can manage your small business better if you have a good grasp of the numbers.
Consider creating a cash flow statement as part of your weekly and monthly financial review. These statements will give you a better understanding of cash movements within and outside your company. The cash flow statement monitors income direction. You can also see payment cycles and seasonal expenses through the cash flow statement.
Cash flow statements are useful for estimating expenses and determining how to allocate income. These statements are useful for constructing financial trajectories.
To understand monetary motion, you don’t need to create a cash flow statement. The right technology can give you a complete view of cash flow in your business.
Automating your bookkeeping services will allow you to visualize metrics and data about cash movements.
3. Log Expense Receipts
Small business owners make the common error of not saving copies of expense reports. This can lead to a variety of accounting and tax issues as well as cash flow problems.
You are probably familiar with the difficulties that poor record-keeping can cause if you’ve ever seen a $100 charge on your bank statement but didn’t know what it was.
You can solve this problem by saving receipts for every purchase your business makes. Although it may seem like a lot of work, some accounting tips can make it much easier.
First, you can only use one credit card for all business expenses. You can keep track of receipts by having a designated place for them, such as in your car or at your desk. You can even snap a photo of your receipt right away on your smartphone! These tips will help you stay organized so that you can file taxes on time.
When they seek accounting advice, people are often curious about where to draw business expenses. These are the categories you can use to determine what expenses you should claim.
- Travel expenses/Out of town: You should claim the amount you spent on a plane ticket if you have to travel for business. You could write off mileage if you spend a lot of time driving along with your gas costs.
- You can deduct home office expenses if you have spent money on computers or office supplies.
- Entertainment and meals: Include in your expense report any drinks or dinners you have paid with clients.
- Gifts: They can be related to entertainment or meals, but they are not always. Entertainment and meals are what you get if you attend an event or meal together with a business prospect. If the prospect was going on their own, it’s a gift.
- Tax time can be a stressful time when expense reports are crucial. So that tax season is smooth, make sure your employees know the importance of saving receipts and itemizing expenses.
4. Record Cash Expenses
Entrepreneurs must keep track of all expenses. These expenses can then be deducted from your total income when it is time to file taxes.
This will allow you to get a better idea of your year’s overall profitability. It’s easy to overlook expenses that were paid in cash. To ensure it is recorded on the books, ask for a receipt from the vendor.
5. Know the Difference Between Invoices and Receipts
Small business owners are all too familiar with the common mistake of combining invoices and receipts. This can lead to financial disaster. It is important to understand the differences between invoices and receipts.
Invoices are bills that customers receive after you’ve provided your services. Invoices are detailed bills that detail everything the customer has received from your company. Invoices remind customers that they owe money. Invoices are useful for ensuring you get paid, keeping track of cash flow and financial records.
Receipts are proof that a transaction occurred. After a transaction is completed, a receipt is what you should give to your customers.
Accounting can be difficult if you keep track of receipts and invoices. When you try to balance your books, it will be difficult to tell the difference between what’s complete and what’s still in progress.
6. Keep Personal vs. Business Accounts Distinct
Many small business owners will use their funds to help them get started. While it’s fine to dip into your funds, using your bank account to run your business can prove problematic.
A separate bank account is beneficial for your business. This makes it easier for you, your accountant, or bookkeeper to track how much money has been spent. You could miss important business transactions if you use your account to run your business.
It would help if you clearly distinguish between your personal and business finances. You may need to set up separate checking and credit accounts for each. Spending decisions should be carefully considered. Only business accounts should be used for business-related expenses. The same applies to your account.
For all business transactions, we recommend that you rely solely on your credit cards. Credit card statements are an easy and automatic way to track expenses.
Cash payments are easy to forget. Many business owners have difficulty keeping track of receipt management. Neglecting cash payments can cause poor forecasting and inaccurate cash flow management reports.
7. Hire a Professional to Handle Your Taxes
Many people attempt to save money by doing their taxes on their own. If you don’t hire an accountant, your business could lose a lot of money.
You could be denied a deduction or pay too much, which can lead to penalties. A professional will know the ropes and offer accounting tips to help you get the best financial position.
They will keep you informed about the changing tax laws to prepare for any tax increases in the future.
8. Maintain Clear Communication with Your Accountant
You might be confused by the terminology used by accountants and bookkeepers when you are working with them to manage your books. If you are unsure of the terminology they use, it is important to let them know. You are not a financial professional but a small-business owner. There is no reason for you not to be current on financial terminology.
Your accountant and tax professionals should be part of your team. It would help if you had them watching over you and offering you advice that you can trust.
9. Understand Double-Entry Bookkeeping
Although most businesses are now using accounting software, double-entry accounting principles still apply. You record the purchase and the profit for your business when you make it.
If you buy a pair of shoes for ten dollars, you will write down ten dollars on your balance sheet. Double-entry bookkeeping would allow you to write plus ten to account for inventory gain.
This style of bookkeeping is the best to show where your money is going unless you have lost all the money you spent. This will allow you to make the best business decisions.
10. Chart Your Accounts
Multiple accounts are necessary to get a complete picture of your business. Each important aspect of your business must have its own space to log transactions. The account balance should also be adjusted following the transaction.
These are some of the most important accounts that you should keep track of:
- Account Receivable (money customers owe you)
- Accounts Payable (money you owe someone else)
- Sales (your revenue)
- Purchases (supplies)
- Payroll Expenses
- Owners’ Equity (The money you and other owners put into the business)
- Retained Earnings (your profits)
You can even split your accounts into sub-accounts to track individual transactions and product purchases for those who are more detail-oriented.
11. Prepare Financial Statements
We have previously discussed accounting tips that covered the various types of financial statements that a company prepares. This includes the balance sheet, income statement, and cash flow statements.
You should prepare these financial reports every month or quarterly basis. They will allow you to analyze your business’ health from many angles. The balance sheet gives you a snapshot of your business’s assets, liabilities, equity, and equity at a particular moment. The income statement shows income and expenses over a specified period. It also gives you a snapshot of your business’ “bottom line.”
Publicly traded companies would have to provide financial statements for investors on an annual or quarterly basis. This is unlikely to be a requirement for you. It is up to your business to decide how often you should produce this type of report.
12. Look to the Future
To help predict your business’s future financial trajectory, compile a monthly accounting report. This could be a simple report that identifies upcoming expenses, such as taxes or legal fees. This plan may include more detailed plans for company growth, such as budgeting for new hires or higher rent.
This can help you make the most of your existing assets. Forecasting can help you plan confidently for important milestones in your company’s development. Analyzing your financial data monthly can help you forecast effectively. Smart investment decisions can be made with data-backed analysis.
13. Leverage Technology
It isn’t easy to keep accurate records in practice. This becomes more difficult as your business grows. One transaction can result in multiple entries to several accounts. It cannot be easy to keep track of all these transactions when there are so many.
Technology can help. Accounting systems make it much simpler to record every transaction that your business makes into physical ledgers, just like they used to.
Keep a copy of every receipt, digitally or physically, if you use software to manage your accounting. If you find any discrepancies, you can always go back to verify them before you balance your books.
Keeping the books is integral to maintaining a healthy cash flow and spotting trends in your finances early on. It’s also essential for making sound business decisions that allow you to focus on success, expansion, and more. Contact us today so we can help with all of your bookkeeping needs!
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