Important Bookkeeping Tips
Whether you own a local farm-to-table restaurant, the neighborhood beauty salon, or reliable plumbing service, your small business is yours. It’s an endeavor you started because you’re passionate about sharing your products or services with the members of your community.
But not every aspect of business ownership revolves around your area of expertise. Such is the case with bookkeeping.
Bookkeeping is crucial to owning and operating a successful company, yet 40% of small business owners name bookkeeping as one of the worst aspects of owning a small business. Fortunately, with some helpful bookkeeping tips, you can better understand how to effectively and efficiently manage your finances. If you are a business owner looking to improve your small business bookkeeping, this guide can help. Read on for our top tips on how to keep better track of your financial records and business transactions.
#1 Separate Your Business Finances From Your Personal Finances
One of the most important bookkeeping tips to ensure accurate and easy-to-process expense reports is to separate your business finances from your personal finances. If you haven’t already, consider opening a separate bank and credit card account for your small business, rather than operating out of your personal accounts.
With a separate business account, you can maintain accurate records and prevent spending excess time identifying and removing personal expenses from your financial reports. All of your incoming payments and outgoing expenses are easily recorded in one place. This creates a more efficient accounting process, particularly when tax season rolls around. Plus, by opening separate accounts, your personal assets are protected in the event of an audit or lawsuit.
Utilizing a separate business credit card is also beneficial as it can allow your business to build its own credit. This can help increase the value of your company and secure funding for future projects and expenses, such as:
- Purchasing updated appliances and software
- Renovating storefronts
- Expanding operations
If you do need to use your business’s funds for personal expenses, consider making one large transfer once a month that’s easy to identify and process, rather than using your business credit card for individual personal purchases.
#2 Record Deductible Business Expenses
Tracking your business’s expenses is not only vital to understanding how to increase your profits but also allows you to take advantage of certain tax deductions. To make the most out of these potential tax deductions, we recommend keeping an accurate record of all applicable business expenses, along with copies of receipts (as the IRS will require these as proof).
Several types of business expenses you may be able to deduct include:
- Meals – To ensure deductions on business meetings that include meals, record the purpose of the meeting, as well as who attended.
- Business travel – If you need to travel for business, be sure to record the purpose of the trip, save any related receipts, and track your vehicle mileage. As of 2021, the IRS has set the standard mileage deduction for business expenses at 56 cents per mile.
- Home office expenses – If you operate your small business out of your home, you may qualify for certain deductions unique to home offices, including deductions on your internet and phone bills.
#3 Track Cash Transactions
Recently, more businesses have started accepting digital forms of payment, including Venmo and Paypal, to easily keep track of financial flow with an automatic paper trail. However, many local businesses still rely on cash transactions to accommodate and serve their customers.
If your business operates in cash, ensure accurate financial records by depositing the cash into your business bank account or into your petty cash fund rather than immediately spending it on supplies or services for your business.
#4 Securely Store Business Records and Documents
Recording expenses, tracking payments, and storing important documents can often feel tedious. Without organized systems in place, you may find yourself pouring over shoeboxes of receipts and documents if and when you need to file your taxes, undergo an audit, or apply for a loan. This is not only time-consuming, but it can also cause sensitive information to be misplaced or lost.
To streamline your bookkeeping processes and protect your finances, consider investing in cloud-based bookkeeping software, such as QuickBooks or Xero, that can store important digital files, including:
- Receipts
- Invoices
- Wage records
- Previous tax documents
With a cloud-based system, all your financial information is stored online, so you don’t have to worry about misplacing documents or losing spreadsheets in a hard drive malfunction or crash.
A cloud-based bookkeeping system can also save physical space—a significant benefit when considering the IRS recommends businesses store financial records for at least 3 years. For small business owners, space is an invaluable asset, as it can be utilized to store or display products or provide additional seating for customers.
#5 Automate Bookkeeping Processes
If you’re still manually inputting numbers into a spreadsheet, you may also want to consider implementing a cloud-based bookkeeping system to streamline this process. While you’ll have to pay a small monthly subscription fee for a cloud-based program, these systems typically cost less than traditional desktop software and can save you time and money in the long run.
In fact, according to one survey, systems like QuickBooks can save small business owners an average of 25 hours per month. These additional 25 hours can be spent connecting with your customers, researching new products, and creating partnerships with other local businesses to increase your profits and success.
Cloud-based bookkeeping systems can also:
- Sync with your business bank account to provide up-to-date financial information
- Categorize your income and expenses automatically
- Track employee hours more accurately
- Assist with payroll management
#6 Create a Regular Bookkeeping Schedule
Bookkeeping isn’t just about accuracy—it’s also about consistency. To prevent financial errors that could significantly impact your profits or negatively affect your relationships with customers or vendors, it’s important to prioritize good bookkeeping at least once a week. Maintaining this type of consistent schedule will ensure you catch any accounting errors in your financial data early on and provide you with a more accurate picture of your business’s growth.
Weekly bookkeeping tasks to prioritize include:
- Issuing invoices to customers or vendors
- Recording payments and invoices received
- Depositing payments into your business account
#7 Understand Your Bookkeeping Reports
While maintaining up-to-date financial records will help you build accurate reports, understanding what these reports mean can help you make better-informed business decisions. By providing an overview of your finances, bookkeeping reports can also help you identify trends, such as growing or declining sales on certain items, to adjust your business model and improve profits.
If you’re new to bookkeeping, the two most important reports to understand are:
- Income statement – Your income statement totals your business’s income and expenses from a given period of time. This report is crucial to understanding whether your business is making a profit or if you’re spending more than you’re earning.
- Balance sheet – A balance sheet provides a detailed overview of your business’s finances, including your assets (the cash, inventory, and resources you own), your liabilities (your debts owed), and your equity (your held interest in the company).
#8 Reach Out to Fellow Small Business Owners
Many people consider small business owners to be the backbone of our communities, providing the goods and services we need to operate on a daily basis. But small business owners don’t need to work in isolation. Rather, they can benefit from working together.
If you find yourself in need of further bookkeeping assistance, consider outsourcing your bookkeeping or payroll services to a local provider who can ensure expert service. Alternatively, for simple bookkeeping advice, you can reach out to other business owners in your area who may have more experience with bookkeeping and can share their insight.
Creating this type of network of support is exactly what Rashawn McDonald Sr., owner of Glaze ‘Em Gourmet Funnel Cakes in Toledo, Ohio, set out to accomplish when he started the Building Business movement. By joining together with other small business owners in his area, McDonald has encouraged local businesses to support each other in their endeavors and share advice about various aspects of business ownership, such as how to start an LLC, how to become insured, and how to manage finances.
According to McDonald: “Sometimes it’s not about money, it’s about knowledge. And if you can get the proper knowledge, you can go to the next level.”
Go to the Next Level with Nextdoor
Your small business is your passion. It utilizes your unique skills and expertise, generates your income, and allows you to connect with your community. But in order for your small business to thrive, consider taking your bookkeeping knowledge to the next level with the small business bookkeeping tips we listed above. With effective and accurate bookkeeping, you can manage your finances, increase your profits, and dedicate more time to growing your business.
Want to connect with locals in your area to share bookkeeping tips or outsource your bookkeeping services?
With Nextdoor, you can build real connections with real people and businesses in your neighborhood. Start by claiming your own Nextdoor Business Page. Then, give and receive business advice, explore other local services, and foster a stronger, more resilient community.
Sources:
Forbes. What To Automate And Where Human Touch Still Reigns: Expert Shares Ten Insights That Will Help Small Business Owners And Entrepreneurs Run A Better Business. https://www.forbes.com/sites/bernhardschroeder/2021/08/02/what-to-automate-and-where-human-touch-still-reigns-expert-shares-ten-insights-that-will-help-small-business-owners-and-entrepreneurs-run-a-better-business/?sh=432a18b34bc6
IRS. Standard Mileage Rates. https://www.irs.gov/tax-professionals/standard-mileage-rates
IRS. How long should I keep records? https://www.irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records
WTOL11. Building Business movement looks to uplift small minority-owned businesses. https://www.wtol.com/article/news/local/building-business-movement-looks-to-uplift-minority-owned-businesses/512-ef654cd9-10ab-4ce2-a1ee-6b959ba50ce3
Shopify. Basics of Small Business Accounting: 12 Steps to Get Your Company on Track. https://www.shopify.com/blog/15334373-small-business-accounting-101-ten-steps-to-get-your-startup-on-track
Business.org. Small-Business Bookkeeping Basics: Here’s What You Need to Know. https://www.business.org/finance/accounting/small-business-bookkeeping-basics/
Fit Small Business. Top 9 Bookkeeping and Accounting Tips for Small Business Owners. https://fitsmallbusiness.com/bookkeeping-tips/
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