Of the 32.2 million small businesses in the USA today, almost 22 million of them are ‘nonemployers’.
That means that they are operating without any employees or payroll. Either these businesses are one-man bands or they use service companies to carry out the tasks that they can’t.
This is a huge number of people who are running their own business, and while they’re probably great at what they do, they might not be so good at accounting. Knowing how to bookkeep isn’t a universal skill, so for all those entrepreneurs who need a little help, here are our top bookkeeping tips.
1. Know The Law
You can’t practice good bookkeeping if you don’t know why you need to be keeping good records. That’s why the first on this list of small business bookkeeping tips is to make sure that you know the law and how it applies to your business.
As well as complying with any legislation that concerns how you conduct your business, you also need to understand what information you need to record regarding your income and expenses. When do taxes need to be filed? How long do you need to keep copies of invoices? All of this and more is the information you need to know, to make sure you get off on the right foot.
2. Don't Mix Personal and Business
To make your bookkeeping as simple as possible, don’t let your personal finances mix with those of your business. Open up a separate bank account for your business, and keep your records separate.
3. Record Your Spending
The expenses that you incur whilst doing business need to be recorded, so you can offset them against your profits at tax time. It doesn’t matter if it’s a major expense like a new laptop, or a pack of post-it notes, it will all add up.
You will want to record a list of all the expenses you’ve incurred, and keep a copy of any receipts of invoices that you’ve received. If you have both these things, then you won’t have any problems should your business be audited.
4. Take Advice
If you’ve never done any business bookkeeping before, then you should find a personal accountant* to ask for advice.
While bookkeeping and accounting aren’t the same things, an accountant* will be able to give you bookkeeping advice. This is the simplest way to ensure that at the end of the year you have all the information you need.
Many entrepreneurs also benefit from fractional CFO services, which provide part-time CFO-level expertise without the full-time cost. This can help you not only stay compliant but also strategically grow your business with financial insights and planning.
5. Use Cloud-Based Software
In the past, entrepreneurs had to purchase accounting software and then upgrade on a regular basis. But in these days of software as a service, that’s not necessary anymore. Popular small business accounting services such as Xero let you use an always-up-to-date web version of their product, and they store your data in the cloud.
Most of these packages offer a free trial period, so it’s worth taking a thorough look to see which is right for you. As they’ve been designed with small businesses in mind, they will automate tasks to make bookkeeping easy.
6. Save For Rainy or Sunny Days
It’s no doubt that cash flow can be a problem for small businesses.
If you have a month where invoices don’t get paid or work just doesn’t come in, that can impact your personal ability to pay bills. Alternatively, if you don’t have any savings you can get caught out by a great opportunity arising that needs some investment.
Having a savings account that you use to store money that you know will need to pay taxes is vital. But you should also consider putting away a little something when you can, to build a fund for those unexpected events.
7. Backup Everything
When it comes to proving what you’ve earned to the IRS, records are everything. If for some reason they’ve been lost or destroyed, you will have to prove to the IRS that this has happened. Otherwise, they may think that you simply didn’t keep them.
For that reason, it’s wise to back-up all your records. If you keep paper copies, consider scanning them in and storing them on a cloud-based solution such as Dropbox. If you already keep them digitally, back them up somewhere else
8. Little And Often
One of the most commonly cited bookkeeping tips and tricks is to balance your accounts regularly. At least once a month, when you get your bank statement, go through it and make sure that it matches with your balance sheet.
If you don’t, then you risk having to enter months of accounts near tax day, and the stress of trying to find a month’s old mistake.
9. Chase Your Debtors
Nothing hurts a small business like late payers. Your terms & conditions should include your payment terms, and what happens if a client doesn’t pay on time?
When your bills are due, let your clients know that they need to pay, and be ready to enforce the consequences if they don’t. You might worry that you will lose a client, but what use is a client who doesn’t pay their bills?
10. Get Everything Checked
Everyone makes mistakes, and if accounting isn’t your natural skill set, then chances are that you might make an error. It’s always worth having someone else look over your books to make sure you haven’t missed anything. Whether that’s a friend with a head for numbers, a bookkeeping service, or a fully-fledged accountant*, it will be money well spent.
