Small Business Taxes for Dummies: Filing for the First Time? Get Help!
Taxes aren't something you want to experiment with. Especially as a business owner! Click here to learn about filing small business taxes...
No industry is exempt from needing a bookkeeper – it’s a central component to achieving success. Whether you hire it out or do it yourself, bookkeeping tasks can be overwhelming. Here’s a simple guide with 8 bookkeeping tips for small businesses:
Make sure you know what’s involved in bookkeeping from top to bottom; it’s the only way you’ll know the job is getting done correctly. For example, if you hire your college buddy as your bookkeeper and they don’t have any formal training, they might unintentionally miss several aspects of the job. Good bookkeeping requires more than keeping track of sales and profits.
When you understand what bookkeeping entails, you can confidently find the right person (or bookkeeping software) for the job.
In a nutshell, a bookkeeper’s job is to record and classify the accounting transactions of the business. A bookkeeper differs from an accountant in that it’s the accountant’s job to analyze, review, and interpret the company’s financial information.
A bookkeeper’s duties include recording financial data involving assets, liabilities, and equity. They’ll use the accounting equation (assets=liabilities+equity) to make sure your books always balance. This equation balances every asset the business owns against what the business owes lenders and vendors.
Bookkeepers often scan receipts into accounting software that extracts the data from the receipt and automatically enters the data in the appropriate place.
A bookkeeper also identifies where transactions should be recorded. For instance, say a customer pays you in cash. If you’ve chosen to use the double-entry accounting method, your bookkeeper would record the cash received in the “cash” asset account and the sale would be recorded in the “sales” revenue account. Once this is recorded, the bookkeeper must record sales tax owed and sales tax collected. Come tax time, this will be absolutely necessary.
A bookkeeper knows the company balance sheet inside and out. A balance sheet shows a company’s assets, liabilities, and equity.
Small business bookkeeping doesn’t have to be hard once you understand what’s involved. Your first move should be to take a bookkeeping class. This will help you understand the technical aspects of bookkeeping that extend beyond organization.
Here are 8 bookkeeping bookkeeping tips to help you stay on track:
The most important bookkeeping skill you need to learn is how to manage a balance sheet. A balance sheet is an important part of your financial records including expenses and income, but it’s a bit more complex than that. A balance sheet has four lines to record data, and it’s imperative that all data is recorded in the proper spot.
Small business owners need to keep cash on hand for daily transactions, emergencies, and bargains you might find unexpectedly. All of this will be documented on line 1 of your company’s cash account on your balance sheet. Line 2 is reserved for accounts receivable and tells you what your clients or customers owe you. Line 3 on your balance sheet shows the value of your company’s inventory. Line 4 is for your fixed assets like equipment, vehicles, land, and buildings. The last line – line 5 – is the value of all asset accounts (everything your company owns).
Lines 6-9 deal with liabilities and equity. Accounts payable is line 6, which includes everything you owe the company suppliers. Line 7 is the total of your loans. Line 8 is how much capital you, the business owner, have invested in your company.
Whatever your financial forecast is, track your company’s performance against that plan. For example, if your company projects $50 million in sales next month, make sure to track that progress. You need to know if you fall short of reaching your goals so you can either beef up your strategy or rework your goals. Similarly, if a particular product is providing good margins, you can put more cash behind marketing that product.
When your bookkeeping data isn’t current for the day, it’s tough to use that data to make important decisions. Your success depends on those data-driven decisions. You need to know exactly where your business is financially at any given moment. Cloud-based software programs will give you access to that real time data.
If you don’t schedule your bookkeeping tasks you’re more likely to procrastinate. It’s already too easy to fall behind on tasks even when using the best software on the market. The worst task you can put off is categorizing transactions. It’s hard to remember the purpose of your purchases as time goes on, especially if your receipts don’t provide a detailed description of what you bought. Create a routine for performing your bookkeeping tasks and do them on the same day each month if possible.
Create a standing task in your smartphone’s calendar for a specific time you’ve set aside for the task at hand. Make sure to set an audible alarm to go off to remind you of what you need to do.
Each day, verify all cash deposits placed into your business bank account with your bank statement. Make sure all your employees are making deposits on schedule and in full. Verify that anyone else making deposits has done so correctly. Verify checks paid match the amount owed and verify the payee’s name is the authorized name. Don’t get behind on this or it will take you more time to match up later.
An inexperienced accountant will cost less than an expert, but that’s never the right move. Be picky with your accountant. You need someone with skills, experience, and attention to detail. Most of all, you need someone willing and able to learn new software and someone who wants to learn everything about your business to do the best job they can.
If you find errors when reviewing your books, stop and correct them immediately. Small mistakes are often a sign of carelessness and there might be more than one mistake. Try to find the source of the error and then correct it. A small discrepancy left on your books can grow into something much worse and harder to correct later on.
Using cloud-based applications allows everyone access to real-time data without having to save and send files back and forth. Remember the days when you had to hunt for the most recent spreadsheet file and sometimes the data didn’t get saved to a new document? Those days are gone thanks to cloud software that updates in real time for all authorized users.
While software companies are doing their best to meet the needs of bookkeepers, there will always be a human element involved in the process. The old saying “garbage in, garbage out” applies here. Although in the future, AI algorithms might be able to flawlessly perform all bookkeeping duties based on nothing more than raw data, we’re not there yet.
Your ability to be successful in business depends on your ability to maintain accurate bookkeeping whether you outsource the task to a third party, use multiple software applications, or do it all yourself.
Get the latest posts delivered right to your inbox