Small Business Bookkeeping - Here is what you need to know!
Of all the things you have to do to run your business, bookkeeping often ends up at the bottom of the list. As a business owner and entrepreneur, you like to think forward, planning and implementing change in real time. Bookkeeping is often seen as reflecting on the past BUT it can have a huge influence on the business decisions you make moving forward.
Let’s make bookkeeping easy! We’ve compiled our top 10 small business bookkeeping tips along with action items to make bookkeeping beneficial for your business growth.
Bookkeeping Tip #1: Keep it Seperate
How many times have you gone to pay for something in your business and pulled out your personal credit card instead? Or have you paid for a personal expense from your business account? It happens to every business from time to time. But those who make a habit of mixing business and personal expenses make their bookkeeping even harder. This also puts you at risk if you are ever audited by the IRS.
Your business banking and credit card accounts will be attached to your Federal EIN number instead of your personal SS#, this is one of the ways you are separating out the finances and being clear with the IRS that you have a business and not a hobby. A business credit card will also allow you to establish a credit score for your business should you need this in the future for borrowing power.
Action Item: Keep a seperate account for business checking and savings. Use a business credit card for all of your business transactions. If you make a mistake, send an email to your bookkeeper so they can be sure to update your books for you.
Bookkeeping Tip #2: Weekly Expense Review
There is nothing like putting off looking at your cash flow to only realized that recurring membership cancellation didn’t go through or you were overcharged on a purchase. A simple glance of where your money went each week can put you to ease and help you mitigate financial stress down the road. If you are using Quickbooks it’s a simple report to review your expenses and what income came in that week.
Some of your expenses are going to be annual or quarterly. You will want to be aware of these expense trends as you are monitoring your expenses. If you can plan you cash flow, you can set aside money for these times with expenses spike and thus you won’t “feel” the hit to your cash flow. While your bookkeeper is keeping an eye on your expenses, ultimately they don’t know what expenses you want to ditch or keep. It’s up to you to monitor the expenses and decide how they align with the big picture for your business growth.
Bookkeeping Tip #3: Go Paperless
Paper can pile up when you are running a business. That’s why we recommend going digital as much as you can for your financial tracking in your business. There are several ways to do this.
Tracking apps are one of the first places to start when going paperless with your tracking. For example, apps like Mile IQ will track mileage and sync with payroll for mileage reimbursement. Quickbooks allows you to scan in your receipts, so the moment you make a payment you can take a picture and trash the paper. Utilize time tracking software for contractors, like TSheets, and let it sync with your payroll system so you don’t have to manually enter in data every week.
Your invoicing needs to be digital. Gone are the days of printing checks for payment and mailing invoices. Whenever possible utilize a client interface system that allows all communication to be digital, from invoicing to payments. Let’s be honest - we don’t always like to keep track of things. Apps can help us automate some of that mundane tracking. The more proof you have for what you received money and paid money for, the better in case you ever face an audit.
Action Item: Put your Quickbooks app on your phone and start scanning receipts from here on out.
Bookkeeping Tip #4: Mark Your Calendars and Save Your Money
No one likes to pay penalties and fees because they are late with payments or filings. Yet, a third of people file their taxes late. Some may say it’s the cost of doing business, but it’s definitely a cost you can avoid if you are prepared. From quarterly tax filings, payroll due dates and state tax filings simply put these important dates on your calendar with reminders so you don’t miss them.
Taxes and fees are some of the most stressful expenses for business owners. This is mostly due to lack of preparation. Don’t forget that part of your cash flow is to set aside money to pay your taxes, whether that be weekly or monthly so you are caught off guard with a huge tax bill you can’t pay. Don’t spend all of your profit right away. Be sure to pay your taxes too.
Action Item: Grab your calendar and put in recurring events with 1 week reminders for your state taxes, federal taxes, sales taxes and payroll taxes
Bookkeeping Tip #5: Automate Payroll
We have seen people fill out spreadsheets, calculating payroll on their own or who use payroll companies that require a lot of communication, fees and clunky processes. If you have a team, staff, contractors or employees, using a payroll software can take a lot of tasks off of your plate. Imagine each person clocks in, that time tracker syncs with your payroll, pay checks are disbursed based on those hours worked with all taxes and fees taken out and paid automatically - sounds amazing right?
Using a system like Gusto (affiliate link) or Quickbooks you can automate time tracking, plan for bonuses, automate your payroll and other HR benefits as well. This also gives your employees and/or contractors a portal where they can see their benefits and payroll history.
We have seen a lot of our clients switch from payroll companies to more automated companies like Gusto and they have found the process to be way easier and the interface more user friendly for themselves and their staff.
Action Item: Research and implement easy to use software for your payroll process.
Bookkeeping Tip #6: Category Strategy
One of the major reasons business owners don’t utilize their bookkeeping as part of their business development strategy process is because they don’t categorize their transactions in a way that can give them data for better decision making. Broad categories are all the IRS really needs come tax time. Many bookkeepers use general categories. It’s something you will see as a standard across the board.
However, when you have general data, we believe you are limited to making general decisions. If create sub categories, you detail your income sources and expenses so you can make better business decisions.
Want to know if you should continue offering a service or product? Categorize your income based on type of service so you know where your revenue is coming from. Want to know what types of software it takes to run your business? You can create software categories for sales, marketing, or operations to really understand where your money flows and what you want to make a priority moving forward.
Your bookkeeper shouldn’t be someone who just does the bare minimum. They need to be invested in your business, understanding the categories and detailed sub categories that are advantageous for your to track so you can truly grow your business from a well-informed position.
Action Item: Create subcategories that will give you more details to where your money goes in your business.
Bookkeeping Tip #7: Pay Attention To Trends
Having accurate and up to date books allows you to see trends in your income, cash flow and spending throughout the year. This can influence your decisions in marketing and sales as well as budgeting. You want to look for trends in several areas.
You will look for trends in sales. For example, some service professionals notice a dip in their income during the summer when many of their clients are traveling and on vacation. If you know a dip is coming, you can prepare for it with savings or amping up your marketing efforts to breath new life into the business.
You will look for trends in expenses. If you have an annual expense that hits you around tax time, you can prepare for this with savings in your business as well or look into changing when you renew the expense so it takes less of a strain on your business.
You will look for trends in quality of accounts. Not all customers are the same. Some are late in making payments. Some cost more per project than others. Discover what customers are the best fit for your business so you don’t waste time and energy.
A great bookkeeper can help you identify these trends as they review their books with you.
Action Item: Review trends in your business at least quarterly, looking for fluctuations in sales, comparing year over year revenues, outstanding balances and any shifts in expenses that are out of the ordinary. Then you can create strategies to mitigate the risks and leverage the your opportunities.
Bookkeeping Tip #8: Control Your Income
It’s time to get rid of outstanding balances in your business. Gone are the days of waiting for clients and customers to pay you. So many business owners lose out on income for their services and products because they didn’t get payment first.
Put processes in place that keep you in control of your income. Keep credit cards on file and use tools like Quickbooks to help you automate recurring payments. Have solid contracts in place as well so you can take action if necessary.
Credit cards should be stored in your customers file in your Quickbooks account if that is what you use for invoicing. If you have a business that deals with private health information (PHI) then it is important that those credit cards accounts be kept in an encrypted, HIPAA compliant system and not in your bookkeeping software.
Action Item: Add a credit card authorization form to your contracts with all products and services and keep a credit card on file for all customers and clients.
Bookkeeping Tip #9: Do A Quarterly Review
How often do you take a deep dive into the financial health of your business? Every quarter, in preparation for paying your quarterly taxes that are on your calendar, review your books. Run your quarterly P&L (profit and loss) along with your balance sheet and accounts receivable and payable reports. It’s time to make sure that you are track for your financial goals and if not, to make a plan for course correction.
This will also help you see where to cut back on spending, ensure all your bills and invoices are paid and to track income streams so that you know you are running a business that is efficient and has integrity. We liken this to any project. If you keep things in check along the way you won’t be left with a huge mess, last minute. Your accountant will thank you and you will have way less stress every year.
Action Item: Put a quarterly review on your calendar before your quarterly taxes are due.
Bookkeeping Tip #10: Get A Bookkeeper
You went into business to do what you do best, not to do bookkeeping. You aren’t a certified bookkeeper, you just need the facts from the books so that you can make the best decisions for your business. We can’t tell you how many times business owners take this task into their own hands and forget to reconcile the accounts, can’t remember what was a personal or business expense, or mess up their categories. Often our clients come to us because their accountant can’t move forward on their tax filings until the books are cleaned up.
Not all bookkeepers are the same. They have different levels of certification, experience and interest in the businesses they work with.
A key to a great bookkeeper is communication.
You should hear from your bookkeeper every month, clarifying expenses and income.
You should be getting monthly reports from your bookkeeper.
You should be getting consultation and education at least once a year if not quarterly on your reports so you understand what they mean for your business
There is a cost to not having a good bookkeeper. There might be expenses that you can write off that you are missing. Your bank may make a mistake in your statements (yes! This happens) and that might mean money lost for you. If your bookkeeper isn’t on time then your taxes won’t be on time either. This can cost you money, time and headaches (get out the Tylenol).
Bottom Line: Outsourcing your bookkeeping will not only free up your time it will increase the accuracy of your books and save you money in the long run.
Action Item: Take bookkeeping off of your plate and book a consult with a team member from Grow the Books.