Millions of small business owners struggle to complete their bookkeeping on a monthly basis, and for many of them, it is an unwelcome chore. Most people aren’t “accounting” or “financially” focused people, and most small business owners would much rather spend their time doing the fun part of their business which is providing the service or selling the product they went into business for.
So here are some bookkeeping and accounting basics which will help set you up for success:
- Software – QuickBooks Online is my favorite software to recommend for small businesses. Not only is it intuitive and easy to use, it’s a cloud based application which gives you access to your financial data from anywhere. Also, the software is scalable so you can upgrade the software between 3 different tiers as your business grows. Start with the basic version, and upgrade to more robust versions as you need it.
- Consistency – There is no principle more important in accounting and bookkeeping than being consistent in how you record your revenue and expenses. Therefore, it is so important to set things up the right way the first time. Constantly changing how you categorize your financial data will make it less valuable because you will not be able to do the historical comparisons of the data that will help you better understand patterns in your business.
- Timeliness – I always tell my clients it is important to complete your bookkeeping timely, and by timely, I mean by the 10th of the month for the previous month. Remembering every purchase you made for your business can be difficult, especially if you have a high volume of transactions. That is why it is so important to keep up with your bookkeeping! The longer you wait to enter transactions, the harder it will be for you to remember what happened.
- Separate – Never mix your personal and business expenses because it will make it difficult to handle. Not only is it easier to keep your records accurate if you are dealing with one account, it will force you to stay organized. Also, there is something called the “corporate veil” which is the protections your corporation gives you from individuals going after your personal assets in the event of a lawsuit. When you mix your personal and business you have pierced that veil, and you have opened yourself up to personal liability. Just don’t MIX!
- Collect – You did the work, now did you collect the money for that work? Checking in on your Accounts Receivables on a regular basis is one of the most important things you should do for your business. Having a client owe you isn’t the same thing as having the money in the bank. Without collecting on receivables, you may run into cash flow issues which will prevent you from paying your bills on-time so don’t let it slide.
If you keep your books in check by following these tips, you will have the financial records you need to make better business decisions. Of course, once you have done the work of entering your transactions make sure you review your reports for accuracy. I like to tell clients to do a horizontal analysis of the data by running the P&L by month and looking for consistency in the revenue and expenses. If there are large variances from month to month, you may be looking at a mistake so dig deeper and fix the problem before time passes.
If you are looking for help with your bookkeeping and accounting or are just looking for setup and training assistance, contact us! We will be happy to help!