Some business owners despise words and phrases like bookkeeping, accounting, bank statements, and the like. Although everyone is in business to make money, some of the details in getting there are tedious at best and a nightmare at worst.
The bookkeeping aspect of a business is tough for many business owners to tackle. However, you must know basic finances in order to plan your business and earn your wealth. Avoiding things doesn’t make them disappear.
Tip #1: Choose a Bookkeeping System
You have a choice of handwritten ledgers, computer software, or hiring a bookkeeper. Handwritten ledgers can become confusing and difficult to update if you fall behind, especially if you have no accounting background. But there is a multitude of bookkeeping software titles available. If you want to hire someone, take your time to plan an interview process and check references, even if you hire a local firm that will assign someone to handle your records.
Tip #2: Do Your Bookkeeping Regularly
If you’re not ready to hire a bookkeeper, choose one day a week or twice a month to log your receipts. For those with online businesses, your expenses will be nominal; those with physical locations will have much more overhead, which makes regular, accurate bookkeeping even more important. Don’t wait until two months before the tax deadline to take out a shoebox of receipts and start entering them. Also, reconcile your bookkeeping records with your bank statements on a monthly basis. Keeping a regular bookkeeping schedule also diminishes the chances of duplicate entries, or entries being logged into multiple or wrong accounts. All this wreaks havoc at tax time so do it right from the start.
Tip #3: Know the Jargon
Whether you’re using software or a real-life bookkeeper, knowing what the different accounting jargon means will further your understanding of how profitably your business is running. Know the difference between Accounts Receivable and Accounts Payable. Keep accurate inventory counts of your physical products (very often this is the only way to know if you’re a victim of theft). Knowing the difference between Employee and Independent Contractor means a world of difference when it comes to calculating Payroll Taxes.
Tip #4: Make Detailed Notes
For every transaction that is entered into your books, add a detailed note. No more guessing games at tax time. Enter the reason for the expense, person, company, etc. Also, avoid using acronyms in the notes. While it makes sense to you now, it may look like a foreign language in the future, or to a new bookkeeper or employee.
Tip #5: Separate Personal Expenses and Business Accounts
This may seem like common sense, but I can’t say it enough. If you use PayPal for your business payments, do not pay personal expenses with that same account. The same is true if you have a business checking account at your local bank. Don’t use that account to pay your gas bill.
Knowledge is Power
The more you know about your company’s financials, the more power you have to fix any problems and steer the ship toward more earnings. Your business was built to be profitable. Embrace the bookkeeping practice rather than avoiding it. Doing so will help you run your company more smoothly.