Remember how easy it was to organize your business receipts, bills, invoices, and general paperwork? But then you started selling more, getting more clients, more paperwork came in, and everything went out of hand.
Now, even a minor inaccuracy or oversight can have an impact on your profit and loss statements, income statements, and revenue projections. You won’t realize the consequences until you’ve dealt with a major year-end mistake that affects your payroll and taxes. Managing administrative work can get complicated as your business grows (especially if that growth is rapid), and what was once a straightforward administrative process quickly becomes a tough challenge.
Despite the fact that bookkeeping is critical to owning and running a successful business, 40% of small business owners rank it as one of the most difficult aspects of running a small business. It is understandable that you did not start your business with an inclination towards bookkeeping, so it might be one of the most time-consuming and tough duties on your plate. But it doesn’t have to be that way.
This blog post is for small business owners like you who want to learn how to handle their company’s finances. Read on if you want to save money, time, and headaches by setting up an easy-to-follow bookkeeping process.
Most small business accounting entails using personal accounts to cover business expenses, but be careful not to make this a habit. When your business income is mixed with your personal accounts, it doesn’t make more money—it just makes a mess. It takes more time and effort to organize, so avoid the confusion and keep things simple by keeping separate bank accounts for personal and business needs.
It’s a good idea to keep personal and corporate expenses separate for tax purposes and legal liability. With a separate company account, you can keep accurate records and avoid wasting time identifying and extracting personal expenses from your financial reports. All of your incoming and outgoing payments are conveniently documented in one place. This results in a more efficient accounting procedure, particularly during tax season. You also secure your personal assets in the event of an audit or lawsuit by opening separate accounts.
If this isn’t possible, consider making one large transfer once a month for easy identification and processing, rather than using your business credit card for individual personal transactions. Maintain proper documentation of any personal contributions so you have accurate records for your business tax return.
One of the first steps in creating a business plan is to create a revenue forecast and list of projected expenses, and then compare that budget with actual costs and revenues. It is imperative that you keep detailed records of all your business expenses and the type of finance you work with.
A study conducted by the Federal Reserve Banks of Chicago and San Francisco found that more than 60% of businesses with great financial health always created a budget and then established a separate bank account for payroll. Less than 5% of companies with poor financial standing have adopted these two methods of financial planning and management.
Put your budget on paper and start going over the details. A detailed budget will remind you to set aside money for things like office supplies and software, marketing, and taxes so you’re not scrambling when tax season arrives. See if there are opportunities to cut costs in your payroll, record-keeping, or sales operations. It will help you in setting benchmarks so that you will know early on whether you need to scale up or if you can afford to take a vacation.
Be truthful when estimating the costs that may arise over the next five years. Recognize your company’s seasonal ups and downs and how they will impact your ability to spend money throughout certain periods. By making sure you’ve planned for major upgrades or spikes in staffing costs, you’ll avoid cashing out of your business during profitable months and running out of money during lean ones.
Make sure to keep track of your business expenses so that you can deduct them from your profits at tax time. It’s beneficial when you claim a tax refund on many business expenses. You will also want to keep receipts in a safe place and organize them. Additionally, download your monthly banking statements so you have a file of them for quick access. By following these steps, you should have no problem when your company is audited.
If you decide to hire a bookkeeper, make sure they have access to those statements and are reconciling each month–flag any discrepancies and resolve them to prevent a backlog later in the year (when you might forget what happened months earlier). This enables you to gauge your company’s cash flow in real-time and identify any potential gaps.
If you can’t track the steps you’ve taken when reviewing your previous company’s finances, you probably haven’t clearly developed an audit trail. An audit trail is a documented history that helps support the transactions recorded in your accounting. It ensures that your invoices are organized and that you can easily go back and correct any minor mistakes.
You can follow this trail to find out about all of your previous transactions, which will make it simpler for you to confirm that the data that was recorded is accurate. Invoices, estimates and even purchase orders are some of the documents you might include in an audit trail. To help you prepare for audits, you can use your calendar to create notes about the clients you will be meeting at each of those coffee dates, lunches, and events. This will help justify your expenses for your tax return, once you are audited.
Additionally, leaving an audit trail is crucial if you’re managing your books manually because it will help prevent fraud in your company, increase tax payment accuracy, and locate any missing transactions in your list.
Maintaining good invoice management will help your cash flow, which will benefit your entire business. Many small business owners believe they have the invoicing process under control.
However, the timing, approach, and messaging you use for invoicing may all have a big impact on your bottom line.
Make sure to track all past due invoices, outstanding invoices and paid invoices in monthly or weekly bookkeeping activities. Your payment information must be accurate – don’t forget to double check.
Send your sales invoice and inform your customer of their obligation to pay as soon as possible. Do not put off sending out invoices any longer. Depending on the number of invoices, you can do this after the transaction or at the end of the day. Providing a fixed date is important to getting paid on time to help prevent customers from ordering new products or services before paying their previous invoices. You may also decide to do it at the end of each week. In reality, a sizable percentage of customers pay as soon as they receive an invoice; so the sooner you request payment, the sooner you’re likely to receive it. One of the best options for making sure your customers pay on time is to add a late payment fee to each invoice.
You might be inclined to give up the “boring” part of entrepreneurship for as long as possible if you don’t enjoy working with numbers. Find out what’s really happening by digging deep into your books so you’ll be more ready for future financial requirements. For instance, if sales are increasing quickly, you might need to recruit additional staff or buy new equipment.
One of the best bookkeeping advice for small companies is to at least once a week review your books. This will help ensure that everything is in good condition. It will also allow you to identify any issues before they become major problems and to adjust your operations (such as sales, production, cash flow maintenance, etc.) to better meet incoming needs.This helps you avoid unbalanced records, returned checks, or unpaid invoices that are months overdue.
Depending on your industry, the frequency of reviews may vary, but for most businesses, quarterly reviews should suffice. At the end of each quarter, look more closely at your bookkeeping and accounting records to spot any trends, both good and bad. Do you have any customers who consistently pay late? Do your sales increase or decrease over time? How is your financial situation compared to the same period? This will allow you to spot trends such as declining or stagnant sales, increasingly unreliable suppliers, and changing market demands.
Similar to regular bookkeeping, a small bit of work spent on tax preparation each month pays off in the end. Plan ahead and set aside money for any anticipated tax payments to prevent a hefty tax burden at the end of the year. This can help you in avoiding any penalties that could result from late tax payments. The IRS website offers a useful business tax calendar so you never miss an important date.
You can lessen the financial burden on your business operations by setting aside money each month to cover upcoming expenses like income and payroll taxes. It can be difficult to predict how much tax you will owe the IRS, but it’s important that you allocate enough money to cover the obligation.
Moreover, your tax liability will vary depending on the legal status of your small business . Self-employed individuals often have to withhold and pay their own taxes on a quarterly estimated basis. If you operate as a sole proprietorship, LLC, partnership, or corporation, your income tax laws will differ.
You should also earmark expenses that qualify for tax credits. You’ll benefit from more streamlined recordkeeping through faster and more accurate identification of taxable deductions and benefits.
Despite your best efforts, there are instances when the admin work of your business will take a back seat. There is no denying that the majority of small business entrepreneurs are overworked. It’s not always feasible to manage bookkeeping given your schedule and skill level. As you grow, note how much time you spend each week on the books. Calculate the dollar value of your own time (how much revenue you provide to the company each hour) and compare it to a bookkeeper’s cost.
Getting assistance with these tasks ensures that everything is managed effectively, allowing you to spend more time managing the operations, sales, and services of your business. The best option might be to outsource the work if you’re not ready to hire a full-time resource for it.
An expert bookkeeping provider can confirm that your company adheres to best practices all year long. They can help you evaluate the data, provide advice on forecasting and financial planning, and keep your books organized (and audit-ready). Providing data to your CPA on time throughout tax season is an additional benefit. A professional bookkeeper can take just a few hours to process a month’s worth of accounts, so it won’t be long before it pays off.
Making bookkeeping a priority makes sense regardless of whether you opt to outsource it or retain it in-house. In fact, it can mean the difference between your small business’s success and failure.
At Peach BPO, we are aware that it can be challenging to prioritize your bookkeeping especially when you’re busy managing high-ROI activities.
So if you’re wanting to delegate your small business bookkeeping to a skilled accounting team with tailored services to suit your needs, Peach BPO is here to take the burden off your office. Find out how we can help you recharge the growth of your business.
We Want To Hear From You!
We will happily offer you a free consultation to determine how we can best serve you.
What are you looking for ?