Last year we asked 100 business owners across the United States and Canada an important question: “What do you wish you knew before starting your business?”
Of all the answers we received, the most common thing business owners wish they knew more about was accounting and bookkeeping.
Accounting, specifically bookkeeping, is a substantial piece of owning a business. Whether you’re just starting out or you’re a veteran business owner, the efficiency and reliability of your bookkeeping can play a large role in the overall success of your business. From helping you plan for the unexpected to being prepared for tax time, bookkeeping basics can go a long way.
While small business bookkeeping can be complex, here are a few tips and practices that can help you stay prepared and keep your finances in order.
Anticipate Long & Short Term Expenses
You may not be able to see into the future, but there are some unexpected expenses that won’t be included in your planning and bookkeeping.
You can’t determine future revenue, but you can predict it by review past revenue cycles and tax returns to help you get an idea of what you may owe. Additionally, you’ll want to review revenue on a regular basis (monthly or quarterly, for example) and calculate taxes owed.
Another great way to account for both long and short term expenses is to review the history and current state of your business with regards to things like inventory, building maintenance, equipment needs, and slow seasons. It’s a lot easier to pay for things like roof repairs or equipment servicing when you plan for it. The same is true for balancing inventory and cash flow during periods when business may be slower than normal.
Set Up & Use Business Specific Accounts
It’s tempting, particularly if you’re a new small business owner, to use your personal accounts for some expenses. However, unless meticulously tracked, this can lead to problems down the road.
By setting up (and using) business specific checking, savings, and credit card accounts, you’ll be able to refer directly to statements to help correctly record and reconcile your books regularly.
If you are just starting out, make it a point to open accounts that will be used specifically for transactions within your business. Not only will this help you stay organized, but you’ll also be able to establish credit for your new business while protecting your personal credit from potential losses.
Save Receipts & Track Expenses
Bookkeeping is a year-long event, and that means you’ll need to keep track of your expenses and other transactions over that 365-day period. Sometimes, particularly if you’re a new business owner, you may not know what receipts you should keep or which expenses can be deducted come tax time.
Saving receipts, no matter how small they are, will help you track your expenses and will help your accountant or bookkeeper get a clear and concise picture at the end of the year.
Tracking and analyzing these expense receipts, preferably using an app made specifically for businesses, will also enable you to understand labor costs or costs associated with specific clients or projects.
Designate a file or folder on your computer to keep all of your scanned and uploaded receipts. Better still, save that file or folder to some sort of online storage program (Google Docs, Dropbox, etc.) to ensure it’s safe from computer glitches or malfunctions.
At the end of the year, you may find you don’t need every receipt you’ve saved, but this is a situation when it’s better to keep it and not need it than to need it and not have access to it.
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Monitor Accounts Payable & Receivable
One key part to bookkeeping is understanding and planning your cash flow, or when you will be receiving or making a payment. Being on top of bills will help you avoid credit issues associated with late or defaulted accounts, and staying on track with customer invoices will allow you to stay on top of bills and accurately estimate cash on hand.
One of the major benefits of solid bookkeeping is getting a picture of where your business stands; accounts payable and receivable play a big role in this picture. You’ll also be able to note any ebbs and flows in your business or identify areas in which you may be able to expand, scale back, or are in need of additional attention.
Become Familiar with Businesss Bookkeeping Terms
Whether you plan to do all the bookkeeping yourself, utilize bookkeeping programs (we’ll get to that next), or hire someone to handle the books, it’s in your best interest to become familiar with some of the frequently used terms and concepts used in business finance.
Some of these (cash flow, inventory), may be terms you’re already familiar with, while others (owners’ equity, retained earnings) may not be as familiar. You can find lists of important terms all over the internet, including one found here.
Utilize an Online Bookkeeping Service
There are multiple ways you can approach bookkeeping. Some of them aren’t very efficient (relying solely on memory and a notebook, for example), while some, like utilizing an online bookkeeping services, can help you save money, grow your business, and ultimately keep your finances straight.
There are a wide variety of online bookkeeping services that range from more hands-on platforms that put you in the driver’s seat, to services that will provide you with a designated individual or team to manage your finances. Ultimately, the decision should be based on your comfort level and budget.
After reviewing the options available, we at Nav.com have partnered with what we feel are the best business solutions available to small business owners. Hop over to our Business Services page to review and learn more about these great service providers.
These are just a few of the key things that are important to improve your overall business organization. By practicing these and becoming more familiar with the financial side of your business, you’ll be able to develop your own unique approach to successfully managing your business bookkeeping.
Jennifer is a alum of the University of Denver. While in the graduate program there, she enjoyed spending time identifying ways in which non-profits and small businesses could develop into strong and profitable organizations that while promoting strong community growth. She also enjoys finding unique ways for freelancers and start-up businesses to reach and expand their goals.