When it comes to your business, bookkeeping is a critical part of keeping it up and running—and running well. Although bookkeeping should be on that never-ending list of “to-dos”, bookkeeping isn’t always a business owner’s top priority. To help you move your to-dos to today, we’ve whipped together a list of 12 bookkeeping tips that every small business owner should know.
Here’s what we’ll cover:
- Separating your personal and business banking
- Keeping track of your receipts
- Paying yourself a salary
- The ins and outs of balance sheets and income statements
- Preparing quarterly budgets
- Tracking your accounts receivable
- Understanding your operational costs
- Invoicing your customers quickly
- Automating your bookkeeping
- Remembering tax deadlines
- Outsourcing and if you should consider it
Making bookkeeping a habit
Let’s get learning.
1. Separate your personal and business banking
Thinking about mixing your personal and business expenses? That might seem convenient at first, but the truth is, combining the two might cause some problems and tax implications down the road. Not to mention the fact that things can get messy, and messy fast.
To keep yourself and your business organized, open a separate business bank account specifically for your business expenses. Then, handle your personal transactions through your personal accounts.
Separating the two has its perks. By getting a business bank account, you can keep your budgets on track, keep your accounting records organized, and stay on top of the financial health of your business. Plus, tax time becomes a whole lot easier, especially when you’re looking for those deductions.
And remember, if you're running an LLC or a corporation, having a separate account for your personal finances is an absolute must—no ifs, ands, or buts about it.
2. Keep track of your receipts
Remember that “tax time” we just mentioned? That’s just one reason you’ll want to keep your receipts in order.
As a small business owner, it’s important to track the receipts of the items or services you’ve paid for. This could be anything from expenses like phone and internet bills all the way to coffee with a client.
Some of these expenses will be tax-deductible, but in order to claim them, you’ll need the receipts. This is also good practice in case your business is audited. If that happens, your receipts are needed to prove that your business transactions are legitimate expenses.
3. Pay yourself a salary
As a small business owner, you’re always working—which means you should get paid. This is especially true if you own a C corporation or an S corporation. In that case, it’s actually a legal requirement that your salary is both reasonable and paid via a payroll system.
For freelancers, self-employed owners, and partners, the above is not a must, but paying yourself a salary is still recommended. This can be an owner’s draw, and it doesn’t have to run through payroll.
Aside from the fact that you (probably) need to get paid, paying yourself a salary helps reinforce that your business is in fact a business, and therefore separate from your personal life and related expenses.
4. Get familiar with your balance sheets and income statements
Time to get cozy with numbers and the sheets that hold them: balance sheets and income statements.
These financial statements are critical for managing your business's finances, so knowing what they do and how they work is important for your success.
In a nutshell:
- Income statements—also called profit and loss statements or P&Ls—track cash flow, detailing expenses and revenue from different profit centers. They essentially summarize your business’s revenues and expenses over a period of time.
- Balance sheets outline what you own and owe (i.e. your assets and your liabilities).
- Monthly income statements help you compare your budgets with past performance.
By familiarizing yourself with these statements, you can identify patterns and trends, plus make informed business decisions.
5. Prepare quarterly budgets
Now that you’ve got the gist of balance sheets and income statements, you can move to quarterly budgets. Or, if you’re someone who needs a bit more frequency in your planning, you can set up your budgets on a monthly basis, too.
The types of budgets you might want to build and manage can vary, but they can all tie into one larger budget. Your small budgets might look like:
- Sales budget
- Inventory and purchases budget
- Cost of goods sold budget
- Sales and administrative expense budget
- Capital budget
- Cash budget
Now that you have your budgets, what’s next? You’ll want to use these as a comparison to actual results and forecasted cash flows. This might be tricky at first, but practice makes progress, and soon you’ll start to see some improvements.
Once you get there, you’ll be able to make more accurate projections of your expenses, which means you’re more likely to spot problems.
Without a budget, you might catch a problem too late, or worse: not at all.
6. Track your accounts receivable
Knowing if and when payments are coming in is an important step to making sure your business doesn't experience a cash flow issue. However, sometimes clients and customers need a bit of extra time to pay their invoices. If that happens, your business can consider creating a payment schedule. You might also want to explore a line of credit on your end to keep your own business running smoothly—just in case.
7. Understand your operational costs
Running a business costs money. But how much? Well, that’s what you need to know.
Understanding the financial implications of every part of your business is a must in order to make sure you’re able to keep running.
This includes knowing marketing costs, rent, wages, inventory, office needs, daily expenses, and more. By knowing the ins-and-outs of each, you can be aware of any potential shortfalls or discrepancies, manage your assets, make sure you’re paying bills on time, and plan for what’s ahead.
Speaking of planning, remember those budgets we mentioned above? Those can come in handy for this part.
8. Invoice customers quickly
Spoiler: quicker invoices means quicker pay.
Sending your invoices to clients right after you deliver your goods or services to them is key to getting paid on time. In an ideal world, that means sending your invoices within 48 hours.
Thankfully, there are lots of ways you can do this that don’t take up all your time or require complicated calculations.
For instance, Wave’s invoicing software helps you create and send professional invoices to your customers in seconds and get paid faster. Just imagine what you could do with that extra time!
9. Automate your bookkeeping
Love bookkeeping? Don’t worry—it’s not our favorite thing either.
The truth is, bookkeeping can be a tedious process. Which is exactly why automating it makes it all the more manageable.
With Wave's accounting software, you can rest easy knowing your books are nice and organized and tax season won’t be the bane of your existence.
Plus, with less manual bookkeeping on your plate, that means you get to keep your eye on the bigger picture, like the health of your business.
10. Remember tax deadlines
Do you know when to file your taxes throughout the year?
For some businesses, that’s once a year, and for others, it’s quarterly. Check out the IRS schedule for more details, then sync it with your calendar, set a reminder, and set aside some extra cash just in case you need it for those tax bills.
11. Consider outsourcing
Managing payroll can be quite the headache for small businesses. In fact, nearly half of small businesses decide to outsource their payroll accounting via services like local bookkeepers or online services.
This can come with its advantages, like assistance and support for issuing paychecks and paying employees on time, but also figuring out how to manage employee tax withholdings and filing payroll tax returns.
Pro Tip: If you decide to go the route of outsourcing, make sure to have a dedicated business account that’s solely for payroll purposes. This keeps your primary account protected, plus you can be sure that your payroll account has the funds it needs, even if your primary account is suffering.
12. Make bookkeeping a habit
Although you might not always think of it on a daily basis, bookkeeping shouldn’t be a one-off task. Instead, it should be scheduled into small tasks and completed over the course of your work week.
If you’re doing your bookkeeping solo vs. outsourcing, you’ll want to be clear with yourself on what you need to do and how often to do it.
For example, if you need to invoice customers, that can be a once-a-week activity. Same with recording payments and tasks like recording changes in credit cards or recording the vendor invoices you received.
For tasks like reconciling your credit card and bank account transactions, producing financial statements, and closing books, that can be done once a month.
Whichever way you choose to go, remember: you’ve got a lot on your plate and sometimes, you need a hand to help. That’s where these 12 tips we mentioned come in, and the bookkeeping tools that help you keep your eyes on the prize: your growth.
And trust us, seeing those numbers rise is a much better feeling than the one you get when you realize your client is 15 days late on their monthly payment—again.
This guest post was written by Wave, for Fundbox.
Disclaimer: Fundbox and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
