Top 10 Bookkeeping and Accounting Tips for Small Business Owners
As a small business owner, bookkeeping is a very important business task that you should be involved with. You might enjoy the profits and the outcome, but bookkeeping is a hassle that is not fun. Here are some bookkeeping tips to help you crunch the numbers faster, keep things simple and enjoy the exciting part of your business.
Keep Personal and Business Finances Separate
It is one of the most important, yet most violated rules. As a small business owner, keeping your personal finances separate will help you eliminate a great number of transactions that you will otherwise have to categorize and reconcile in your business accounts. Having joint accounts doesn’t increase the amount in your account. However it creates a mess; sorting through which is not only time consuming but also expensive, and can lead to a number of mistakes.
You should keep it simple and just maintain a separate bank account for personal and financial requirements. You may choose the same bank or try working with a new one. It is a good option to consider a bank option that requires no or minimal bank fees. Once you have an account, you can keep track of all your transactions via cheques or debit cards, simplifying the process of reconciliation.
Pay Yourself a Salary
Having a different account doesn’t mean that you don’t get paid. As an owner of a C corporation (C-corps) or an S corporation (S-corps), you pay yourselves a reasonable salary and it is run through the system like any other employee’. This is referred to as the draw method, where you withdraw a regular salary from the business or pay yourself if you are the sole proprietor. Such withdrawals can be easily tracked and documented in the bookkeeping. When you draw your salary or pay yourself, the transfer is also recorded in the business account statements.
Reimburse Yourself For Business Expenses
As a small business owner, you will occasionally find yourself paying for a business expense from your personal account. One of the most important business bookkeeping tricks and tips includes having the company reimburse the expenses that should appear in your business account. As a sole proprietor, either you can do it yourself, or have the company write you a check reimbursing the expenses that were paid from your personal account. This check is separate from your monthly salary.
It’s the same process as the rest of the employees. The expenses should be listed along with the purpose, the vendor, and the date on a spreadsheet while attaching the receipts. You’re then written an exact amount of expense from your business. The expenses are deducted by your bookkeeper after the expenses are paid for from the business account.
Reimburse Your Business Mileage
Businesses deduct a standard rate per mile, which is 58.5 cents for 2022, for business mileage driven using your personal vehicle. Small business bookkeeping tips include keeping a track of the miles, the date, and the purpose of the business trip. It is then submitted for reimbursement along with your monthly expenses. Automatically tracking your mileage using GPS is much easier than manual tracking.
You should not be paid directly for your personal vehicle’s fuel even if it is used entirely for business purposes. You should use the 58.5 cents per mile that you receive from the company in order to pay for fuel and maintenance.
The IRS can audit you for up to six years, and requires receipts for all tax deductions. Thus, a very important small business bookkeeping tip is to keep receipts for everything and create a whole file dedicated to each vendor. Document all your expenses, each purchase, and each transaction that involves time, money, or goods. It is recommended that these documents are categorized each week to keep your books updated. A newer method of documenting everything includes investing in a receipt scanner so that you can scan receipts and attach their electronic copy to the transaction within the bookkeeping software. It ensures a more efficient way of documentation.
Monitor Accounts Receivable and Payable
As a small business owner, you really enjoy the process of managing accounts receivable which shows you how much each customer owes you and if there’s any debt that is overdue. Although counting money is fun, you should keep track of your service and the client’s payment. It is not unusual that you forget to invoice a client after finishing the project, especially when you start a new one immediately. You should send and clear invoices every week to ensure that the document trail is up-to-date. You should also keep a record of transactions, especially in cash, while following up on the unpaid invoices.
Accounts payable show you how much you owe each one of your vendors and when that payment is due. It can help you formulate an estimate of future cash flow needs and prepare for any cash flow shortages that might occur.
Consistently Review Financial Reports
In order to pull reliable financial documents at any time, you need to make sure that you keep updating your numbers on a regular basis. You can find out how you are doing monthly, quarterly, or annually using the software. When the financial reports are so readily accessible, it is recommended that you keep checking them to see how your business is doing and predict future endeavors. A very useful small business bookkeeping tip includes a consistent check-in with your books. It is useful that you double-check your documents after entering your transactions and run a quick report, sharing it with anybody you think is interested in your business finances. Your weekly income statement can act as a great motivator to work more efficiently.
A great small business bookkeeping tip includes automation, which can greatly simplify your life. There are a number of bookkeeping apps and software in the market that can help you efficiently manage your books. If you find the right bookkeeping software, you do not have to worry about manually entering all the data, and instead of entering each transaction, you can easily just double-check.
Hire a Professional Bookkeeper
An even better option than software is hiring a professional bookkeeper for your small business. This small business bookkeeping tip ensures that you spend your valuable time on things that need your utmost attention, and work on things that really matter to you. A professional bookkeeper can manage your books without being overwhelmed by the nuts and bolts of DIY bookkeeping. Hiring a professional bookkeeper will help you shift focus on earning rather than just documenting.
Prepare Your Budget at Least Quarterly
If you consistently review your financial reports, you can predict your cash flow for the next few months. As a small business owner, it is necessary that you prepare a good budget. The first step to that involves forecasting sales. You can review the profit and loss report to get an idea of the sales the following month. Reviewing last year’s sales for the same period can also consider any seasonality in the business. Then, you need to examine the expenses on your business’ recent profit and loss report in order to predict what the major expense will be in your forecasted period based on the forecasted sales. The expenses may increase, decrease or stay the same depending on the sales of your business.
It is important that you compare your forecasted cash flows to the actual results. As a beginner, it might seem difficult to make good predictions, but after a number of cycles, you will be able to notice the improvement in your own predictions. Once you get the hang of making accurate predictions, you are more equipped to identify and resolve any problems that might arise. Without a budget in mind, many business owners do not even recognize a problem until their cash flow is in crisis.
How Can MyCountSolutions Help?
Allowing MyCountSolutions to handle the bookkeeping for your small business can ensure that your books are in good hands, and well taken care of. With MyCountSolutions, you will get an easy, simple and straightforward answer to all your bookkeeping needs. You can enjoy the perks of remote bookkeeping services to avoid any hassle or worse bankruptcy. You can control your finances and books at an affordable price and resolve all your small business bookkeeping needs. You can have a stress-free tax season, with MyCountSolutions by making sure that your books are organized well before tax season is due. It will help you save your time and energy to do the things that you want to do for your business.