Small business owners devote most of their time generating sales and growing revenue, but part of their role may include keeping accurate financial records of business earnings and expenses. Bookkeeping has two main goals: to keep track of your income and expenses, and to collect the necessary financial information for filing various tax returns.
If you’re opening (or already own) a small business and the idea of managing your financials is overwhelming, here are six tips that can help:
1. Learn small business accounting basics
Keeping accurate financial records is essential to running any business. If you’re an entrepreneur who can’t yet afford to add a bookkeeping professional to your staff, the responsibility of keeping organizing your financial records will fall on you.
The first thing you’ll need to do is dedicate time to learning bookkeeping terminology and definitions. Being well prepared ahead of time will help ensure business growth and maximum profitability, and will prevent mistakes and confusion.
There are a number of online resources you can use, including articles, whitepapers and eBooks. You may also want to look at online courses and training seminars. Here are some small business accounting resources online to use as a starting point:
- Financial Accounting Standards Board: http://www.fasb.org
- National Association of Certified Public Bookkeepers: http://www.nacpb.org/
- International Association of Book-keepers: http://www.iab.org.uk/
- Accounting Coach: accountingcoach.com
Besides online resources, you can also check local community colleges for training and/or certification courses. Attending sessions in person will give you access to a knowledgeable professional to whom you can reach out to with questions in the future.
2. Open a new business bank account
One of the most important steps a small business owner should take is often overlooked: opening a new bank account to manage your business finances. Being able to separate business and personal expenses can be difficult if they exist in the same account, so setting up separate accounts for earnings and expenses can save small business owners headaches in the future.
To make tracking finances even more manageable, you could consider opening individual, separate accounts for revenue, sales tax, income tax and payroll. Opening separate accounts will keep your business finances organized and make life easier at tax time.
Begin by researching banks in your area and compare their offerings. Make sure you note which documents each of the banks require so you come prepared to your meetings. In most cases banks will only require Social Security number, tax ID and other general information.
Wall Street Journal compiled a list of small business banking needs that owners should consider when shopping for a bank:
- Checking account
- Business savings account
- Credit card
- Deposit-only card
- Discounted employee checking accounts
- Online banking
- Lines of credit
- Commercial real estate
- Equipment leasing
- SBA loans
- Wire transfers
- Wholesale lockbox
- Merchant services
- Retirement accounts
- Discounts on hotels, shipping, office supplies
3. Find the right small business accounting software
Using the right bookkeeping software for your business will keep records more organized and manageable on a day-to-day basis. Bookkeeping software allows you keep everything electronic, including invoices, payments, worksheets and forms. Programs like QuickBooks, Peachtree or FreshBooks make it easy to manage everything right from the computer, and cloud software allows bookkeepers to access financials online from virtually anywhere.
There are hundreds of small business accounting software programs to choose from, and choosing the best will depend on your business. When evaluating software, look for cost, ease of use, time saving features, reporting capabilities, mobile access and mobile features, accountant access, services limitations (number of customers, invoices, users, transactions, etc.), customer service, integration with third-party apps and additional services like credit card processing, tax preparation and payroll services.
4. Automate your small business bookkeeping
Automating as much of your bookkeeping as you can will save you a tremendous amount of time on administrative tasks, leaving you with more time to focus on other aspects of your business.
A report published by Billentis in 2013 showed that compared to traditional paper-based invoicing, electronic and automated processes can result in cost savings of 62%. Automation simply reduces the dependency on trained and skilled manpower, and over time, impacts the bottom line of your business.
Another benefit of automation is ensuring access to an updated backup of your financial data, as opposed to manual bookkeeping. This is invaluable to have in case of emergencies. Make sure to look into automation capabilities when selecting a small business accounting software.
5. Update records daily
Dedicate time every day to updating and maintaining your financial records. Waiting until the end of the week or month may cause expenses to pile up and may result in errors. Save yourself the trouble and update records at the end of day, every day. Here’s an idea what you should be recording:
- Sales and revenue transactions
- Cash transactions
- Accounts receivable
- Accounts payable
- Summaries of transactions.
Remember to post all expenses, as little as they may be. Even small expenses can affect your profit and how much you pay in taxes.
6. Hire a professional small business accountant
As your business grows, you may find yourself having less time to maintain your books daily. If this sounds like you, then it may be time to outsource the work by hiring a professional. If you’re worried about the cost of hiring a professional, consider the consequences of not having up-to-date books, which is far greater than hiring a professional to help maintain them.
For example, if the IRS audits your business and finds insufficient records or significant mistakes in your bookkeeping, it can disallow deductions. You also risk fines and penalties on top of any under-paid tax assessments. If this happens, you may face losing your savings, or worse, closing down your business for good.
There are hundreds of reasons why it’s a good idea to get help from a small business accountant to maintain your books. Payroll Professionals, Inc. of Omaha has more than two decades of experience in the accounting field, serving as a trusted advisor to small- and medium-sized businesses. Contact us to today to learn more about our accounting, bookkeeping and payroll services and receive a complimentary quote.
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