Post Menu and Details.
- Separate Your Personal and Business Expenses
- Use Professional Bookkeeping/Accounting Software
- Allocate Yourself a Salary
- Always Keep the Receipts
- Consider Outsourcing Your Bookkeeping
- Create a Bookkeeping Schedule
- Maintain Organized Business Records
- Craft a Budget for the Future
- Conclusion
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Reading time: ~4 minutes
Bookkeeping is an unavoidable obligation all businesses have. Not only do business regulations mandate that you maintain accurate records of transactions, but bookkeeping is also essential for future business planning.
As an entrepreneur, you will wear many hats. A firm grasp of numbers and how to manage them is a requirement for building a successful business.
If you’ve started your new venture already, here are some top bookkeeping tips from the experts.
Separate Your Personal and Business Expenses
Keeping your personal and business expenses separate is the first step after incorporating a business. While some entrepreneurs may leave it until later, removing the confusion early will save you considerable headaches later.
Separating your personal and business expenses comes with several advantages, including:
- Avoid blurring the lines on your expenses;
- Reduce the chances of triggering an IRS audit;
- Limit your personal liability if a client decides to sue;
- Simplify business expense tracking from day one.
Starting on the right foot from day one sets the stage for efficient bookkeeping. Remember, your business is a separate entity, even if you’re the only employee.
Mixing personal affairs and the affairs of the business can create real problems when it comes to tax filing season.
Use Professional Bookkeeping/Accounting Software
Gone are the days of writing everything down by hand. Accounting software saves you time; as everyone knows, time is money.
Several free bookkeeping options exist for the smallest businesses, but investing in top-tier paid platforms provides additional functionality and scaling tools. The global accounting software market is estimated to reach $20 million by 2026.
With so many options, shopping around early for the right software suite for you can provide your operation with a huge asset.
Allocate Yourself a Salary
Paying yourself a salary is not just a general business tip but a must. If your business is a C-corp or S-corp, you are obligated to pay yourself a reasonable salary and run it through payroll. Even if you’re not officially a corporation, you should still pay yourself a salary.
Without a regular salary, your business needs to cover your personal expenses as well. While there’s nothing wrong with this (as long as it is being tracked for tax purposes), you will need to cope with multiple transactions – increasing the complexity of your bookkeeping.
Paying yourself a regular salary reduces the number of transactions your business makes and simplifies the bookkeeping process.
Always Keep the Receipts
Physical receipts and invoices are no longer required for recording transactions. However, the IRS requires businesses to maintain evidence of all transactions. If your business is randomly selected for an audit, IRS auditors will want to see the receipts.
While you can use the old-fashioned method of files and folders, modern accounting software allows you to scan receipts and keep electronic copies attached to their corresponding transactions. Many accounting software options offer this nifty feature for free.
Consider Outsourcing Your Bookkeeping
Did you know that pre-pandemic, only 10% of entrepreneurs outsourced bookkeeping?
Choosing to do your books is relatively simple if you run a small company. If you only have limited transactions per month, you may not require the services of a professional. Consider that time is money, and the more time you spend on the numbers, the less time you have to invest in doing what you’re best at.
Bookkeepers do more than simply record transactions. They play a vital role in future business planning. Take the time to investigate professional bookkeeping services in your area. Talk to several candidates and see what they each bring to the table.
Create a Bookkeeping Schedule
During busy periods, essential bookkeeping tasks often fall by the wayside. Bookkeeping obligations snowball quickly and can soon lead you into playing an endless game of catchup.
Regardless of what’s going on with you, and established bookkeeping schedule brings order to the books.
Separate different bookkeeping functions into weekly and monthly lists, including which staff member, will be responsible for each one. Your schedule could look like this:
- Weekly – Issue customer invoices;
- Also weekly – Report payments received;
- Weekly – Cut vendor checks;
- Monthly – Close the books;
- Monthly – Produce monthly financial statements.
You may have additional functions depending on the complexity of your business, but practically all organizations will have similar obligations as part of their schedules.
Maintain Organized Business Records
The IRS requires you to maintain records of transactions for a minimum of three years. Along with keeping physical copies of receipts and invoices, you should take the time to organize and categorize your records accordingly.
Some examples of these records include:
- Gross Receipts: The income you receive from your business, including receipt books, cash register tapes, and invoices;
- Expenses: These are the costs incurred to keep your business running. Examples include credit card receipts, tape receipts, and statements;
- Fixed Assets: Record your fixed assets to complete your annual depreciation calculations. Documents like sales invoices, canceled checks, and closing statements on real estate are all examples of fixed asset documents.
Your business’s records will grow in complexity over time as it grows. Establishing an organized system early enables you to easily transition from a tiny one-person operation to a flourishing startup.
Craft a Budget for the Future
Bookkeeping moves beyond the day-to-day expenses. Emergencies happen. Can your firm afford that if you need to come up with a large chunk of cash?
It could be a brand-new office space, a rented manufacturing facility, or a surge in raw materials needed.
Professional bookkeepers play a role in creating a budget and helping entrepreneurs forecast the future. You may choose to construct a monthly, quarterly, or annual budget to maintain a firm grip on your finances.
Conclusion
Bookkeeping is a more in-depth profession than most people think. The value of accurate bookkeeping is the grease that keeps your business’s financial wheels turning. Building a system from day one will help your business cope as it grows.
Consider outsourcing your bookkeeping functions to a professional. Take advantage of third-party expertise, and you will not only get more from your bookkeeping but time to do what you do best.
Thank you for reading!