8 Bookkeeping Tips to Simplify Small Business Financials

Katherine Fan is former small-business writer for NerdWallet. Her previous work as a writer, photojournalist, editor and copy editor has been published by The Points Guy, Bankrate, CreditCards.com, LendingTree and more. She holds dual degrees in journalism and ethnic studies from the University of Texas at Austin. Katherine started her career in the tech industry as a software sales executive. Apply for financing, track your business cashflow, and more with a single lendio account. Those are both just examples and would never happen at your company.

You never know what they’re going to bring in and what their books are going to look like. Start your free trial, then enjoy 2 months of Shopify for $1/month when you sign up for a monthly Basic or Starter plan. Our 6th tip is to consider bringing a bookkeeper in as part of your business team. Expenses can be hard to track, which means that you may be missing tax write-offs from which you could have benefited. Limiting your personal liability in the event that your business is sued. “Find someone you get along with and who will partner with you on your long-term goals rather than just filing your taxes,” Hattrup says.

basic small business bookkeeping tips for business owners

As professional bookkeepers, we know that DIY bookkeeping is often easier said than done. We want you to get it right, so we’re providing 11 Small Business Bookkeeping Tips to help you meet this critical challenge. Wisestamp has revolutionized the advertising real estate known as the email signature and lets you promote your social media accounts using icon add-ons.

Accounting is the process of making sense of this information and presenting it to stakeholders. All of your transactions only need to be recorded once with single-entry accounting, and they may be categorized as either a cost or an income. This is a simple approach that works well for businesses that don’t have a lot of expensive inventory or tools.

But you can see how there’s value in creating a cohesive process for making requests, approving those requests, releasing the money, and recording everything along the way. If you’re like a lot of businesses, there’s always a lot happening in a few different corners of the universe. But the left hand needs to know what the right hand is doing.

Keep an Eye on Your Credit

Some expenses you can forecast, while others are unexpected. But if you plan and prepare for the unexpected, your business will be much better off in the long-run. If so, you probably recall that they left a trail of breadcrumbs to find their way back home. Similar to leaving breadcrumbs, an audit trail helps you retrace your steps in accounting. In some cases, separating funds is not something your business can opt out of.

Be sure to compare your actual results to your forecasted cash flows. It might be difficult to make good predictions at first, but after a few times through the cycle, you’ll see dramatic improvements. Once you’re able to make accurate projections of expenses, you can quickly identify and resolve problems. Without a budget, many business owners don’t recognize a problem until they have a cash flow crisis.

Keep personal and business finances separate

The last thing that any business owner wants is to frantically have to scratch around for cash when the big tax deadline dates come. So, by planning future finance throughout the year and putting money aside each month, the impact won’t be as hard on their business. Cloud accounting software allows you to access your finances wherever you are, on any device, so it’s much easier to stay on top of bookkeeping. As a startup, your focus should be growing your business and making it more efficient.

While the time saved by each of this small automation may not be much on their own, the time adds up quickly. Automation can also minimize the number of errors by removing the human element from the equations. Ensuring that your client understands the different types of transfers to the owner increases the likelihood that the transactions will be classified correctly. Having clients that can successfully complete their own reconciliations will mean that you have cleaner books to work with once you receive them.

You know that you will have to pay taxes, and you know when. Unpaid taxes can incur penalties and interest from the CRA, so make sure the money is there when needed. The scoring formulas take into account multiple data points for each financial product and service. A good fit on personality and values, since you’ll be spending a lot of time with this person. As you establish the financial side of your business, here are five best practices to keep in mind when creating a functional bookkeeping system.

If you’ve been consistent and organized with your bookkeeping, tax time will be a breeze. If you’re using a solution like Sunrise, you can simply invite your accountant to access your transactions and financial reports —they’ll take care of the rest. Software doesn’t replace the need for professional accounting guidance, but it does simplify the minutia of running a business. It’ll help you get your finances in order and keep them in order. And if you’re doing it yourself, it’s especially important to stay on top of your small business accounting. Small business owners often find it challenging to manage cash flow for their company.

cash flow from operating activities essential to stay on top of the numbers so you can notice and correct any trends before they get out of hand. There are many easy programs to use for small business bookkeeping. FreshBooks is one of the most highly rated and straightforward programs for accurate accounting records, professional bookkeeper services, and more. Luckily, most modern-day bookkeeping and accounting software have tools that make cash flow tracking a breeze. Make sure you open a business bank account for your business expenses and do private bank account transactions on personal accounts.

All you have to do is scan the paper, check the details, then move on to the next one. The important part is not to rush with the software purchase. Make sure to read online reviews, compare different pricing options, and see which features are included in the service. By staying on top of books and recording everything, companies like yours will always be in a position where you can produce a detailed and accurate finance report. As the business owner, you’re always interested in what position the business is in and this will help you gain a better understanding. No matter the size of a business, bookkeeping is essential.

Tips for Better Small Business Bookkeeping

After all, knowledge is power and the more you know, the easier it’ll become. That’s why businesses should always financially plan for the future. One best practice of doing so is buying a calendar and jotting down all the important dates throughout the financial year. That way, businesses are always aware of upcoming outgoings and you can plan adequately for them. We recommend spending a little bit of time on bookkeeping every couple of weeks, or every month to benefit you in the long run. Good bookkeeping can prove to be the success ingredient your small business needs.

Your business should have its own separate business account and business credit card to handle financial transactions. You don’t pay any employees, buy inventory, or do much purchasing. But as your business grows and develops a few moving parts, you definitely want to consider bookkeeping software, like Quickbooks. Quickbooks suggests something called a “Chart of Accounts,” which is all of the typical transactions you’ll want to make sure to record. It can also generate a lot of your accounting reports at the touch of a button.

Doing so also alerts you about discrepancies you want to focus on. The important decision to make is which type of bookkeeper your business needs. If you’d prefer to meet with the service provider in person and not rely on online apps, then local bookkeepers are a better option for you. It’s important to understand the life cycles of a business. For growing businesses, it’s important to recognize the best time to make the most out of the opportunities that arise. As we mentioned earlier, bookkeeping can be as simple as you want to make it.

Being short-sighted simply won’t help you cut it in the competitive markets out there. One surefire way to develop a keen understanding of your business’s financial health and forecast its future is by analyzing your financial reports. Learn how much you spent, where you made profits, and where you suffered losses.

• This will help substantiate your expenses for your tax records should you be audited.
• Lendio’s software makes it easy for you to create custom invoices that look professional and provides a clear view of what’s paid, unpaid, and past due.
• They help you put the payment process on cruise control, so you can get a little more admin off your plate, and move on to all those other things that you do best.
• Most financial tasks are carried out over digital channels and involve some accounting tools.
• You can set aside the money for your tax obligations a little at a time or file a timely extension request.

It might be helpful to set an automatic reminder for when the deadline rolls around each year. The IRS actually requires receipts for all business tax deductions. This doesn’t mean you have to keep a shoebox full of faded receipts though. It’s much harder to know where you stand when you constantly have to decipher your transactions and guess whether it was a personal purchase or a business expense. You’re hoping to avoid a scenario where everyone is operating on an island. That could lead to people making purchases without an understanding of your overall cash flow and budget.

The right tool will streamline the process of managing financial documents like invoices, daily expenses, payables, receivables, and receipts. The software should also allow you to easily share your files with your accountant—no copy/paste or screenshots necessary. Less time bookkeeping means more time focusing on growing your business.