Thanks to computers and cloud-storage technology, bookkeeping is easier than ever for small businesses. However, the bookkeeping process of a small business can be as complicated as that of a large corporation if done incorrectly. Bookkeeping is the process of keeping records of the financial affairs of your business. Some activities you might include in your bookkeeping process are billing clients, recording receipts and invoices, paying suppliers and employees, and monitoring accounts receivable. Some common bookkeeping tools include the balance sheet and the income statement. Many small businesses invest in software to simplify their bookkeeping process. Some businesses also employ a certified public accountant (CPA) or accounting firm to help them keep their books accurate, organized, and up to date.
We have some excellent bookkeeping tips for small businesses. Whether you’re a small business located in Buffalo, New York like us or an internet-based startup, these tips for bookkeeping are sure to help your small business keep its finances in order.
1. Modernize your books with software.
Cloud storage software streamlines the bookkeeping process for many small businesses. Intuit is one of the leading accounting software creators with a variety of accounting tools for small businesses. Cloud-based software enables you to view and edit your books anywhere from any device. Many software solutions also allow multiple users, so you and your accounting employees can work out of the same system and view the most recent changes as they happen. Additionally, modern bookkeeping software provides templates for common files such as invoices. Modernizing your books with software is a great idea for small businesses.
2. Be consistent about which accounting method you use.
This second bookkeeping tip seems like common sense, but using the right accounting method is essential for accurate bookkeeping. There are two types of accounting methods you can use: cash method and accrual method. When you follow a cash method, you record transactions when money changes hands. When you follow an accrual method, you record transactions when the money is earned, even if it has not yet changed hands. It’s essential that you choose one method and stick to it consistently in your bookkeeping process. If you use both methods or switch back and forth between them, your books will be confusing and inaccurate. Pick the accounting method right for your business, and stick to it.
3. Don’t let bookkeeping be the job of only one person.
Everyone can play a role in effective bookkeeping. All of your employees can put forth an effort to make the bookkeeping process smooth. For example, make sure employees follow the correct procedure for turning in receipts from business trips. Additionally, hourly employees who follow your time tracking procedures correctly help the bookkeeper simplify payroll. Last, having more than one set of eyes on your books can minimize the risk of errors. If you have only one person managing your books, consider hiring a CPA like Blatner and Mineo to review your books on a monthly or bi-monthly basis.
4. Reconcile your accounts every month.
When you reconcile your account, you make sure the balance of a bank account in your books matches the actual balance on the statement from your bank. It’s important to reconcile your accounts on a monthly basis, because any discrepancy left unnoticed can escalate into a larger problem in the future. When you reconcile, you make adjustments to your books and correct any discrepancies. This bookkeeping tip is the most important one you can implement into your small business bookkeeping process. It will ensure your financial statements are accurate.
5. Avoid cash transactions and checks.
Cash transactions are hard to keep track of, because there is no digital record of the transaction. When it comes time to do taxes, you can also miss out on write-offs because you have no record of cash purchases. Checks can also be difficult to keep track of. Instead of cash or check, use a debit or credit card for a transaction. This enables you to keep track of when, where, and how your money has been spent or earned. If you have to use cash or checks, make sure you implement a strict procedure for keeping track of those transactions.
6. Stay on top of your accounts receivable.
Accounts receivable (AR) hold a lot of value for small business. AR refers to the outstanding invoices a company has or the money the company is owed from its clients. As a business that has provided a good or service, you have the right to receive payment. You may elect to provide goods or services on credit, and collect the payment at a later time. If this is the case, make sure you’ve identified clear payment terms to your customers. Terms should include deadlines and late-payment policies. Stay on top of your accounts receivable by sending reminders to clients about their outstanding invoices and chasing down late or delinquent payments.
7. Hire an accounting firm to manage your bookkeeping process.
A professional bookkeeper could be a valuable service to your small business. Many accounting firms offer bookkeeping services. They will keep your books in order by reviewing and reconciling them with you on a regular basis. They’ll also help you adopt best practices and follow industry standards. For example, they will alert you to the performance trends of your business, point out anomalies, and spot questionable transactions. Also, during tax season they can advise you on which small business tax credits and deductions you can file for. A good firm is one you’ll be comfortable talking finances with, and over time a firm will become familiar with the specifics of your business and should be able to make recommendations. If your unsure if your business needs a professional’s assistance, check out our article on 6 Ways to Know if Your Business Needs a Bookkeeper.
8. Plan for large expenses and taxes.
A good bookkeeping practice of small businesses is to plan for large expenses including taxes. Some major expenses you can consider when creating your annual budget are inventory, supplies, marketing, and maintenance. Expenses differ based on industry and your specific business practices. Forecasting your expenses for the year will eliminate uncertainty about your finances and provide peace of mind. Even tax expenses can be estimated if you kept track of your records properly in previous years. A plan for large expenses and taxes will provide guidance throughout the year as you continue to balance your books.
We hope you have found some of these small business bookkeeping tips helpful. For more guidance on running a small business, check out our other articles. We also provide bookkeeping services in Buffalo, New York and the surrounding areas. As a Buffalo CPA firm, we offer expert bookkeeping services to your small business.