Bookkeeping is an important and necessary part of owning a small business. However, you probably weren’t a bookkeeper before you became a small business owner. You are bound to make some mistakes along the way. Fortunately, most of these mistakes are pretty easy to fix. Use these basic bookkeeping tips for small business owners to help you learn the ropes and avoid errors.
- Choose the best accounting system for your business. There are two main options – cashed based accounting or accrual based accounting. In a cash based accounting method, you count your income when you get it and count your expenses when you pay them. With the accrual based accounting method, you count these things when they happen instead of when they are paid. So what’s the difference? Well, there will be a difference for your business if you keep an inventory or make transactions on credit. If this is true for your business, the accrual method may be a better choice for you. In fact, the IRS may require a business to use the accrual accounting method if they keep an inventory or have more than $5 million in sales. If you don’t keep inventory or deal with credit transactions, a simple cash based accounting system should work just fine for you.
- Keep daily records. This is simple, but extremely important. Make an accurate daily record so that you are aware of the financial situation of your business. It doesn’t matter what system you use; just choose one and stick with it. Once your system is in place, it will only take a few minutes to keep up with it each day.
- Treat checks with as much care as cash. You probably write a lot of checks, and you get envelopes full of canceled checks back from the bank. It’s easy to fall into a routine and pay little attention when writing checks, but take a moment and slow down. Review all of your checks carefully. If you make a mistake, it is your mistake, not the bank’s mistake. You will have to deal with the fallout. Review cancelled checks personally; this way, you will be aware of any unauthorized checks before anyone else gets the chance to remove them.
- Request a bank statement that cuts off at the end of the month. This is useful because it syncs your bank statement with your other monthly records, so you are comparing matching time frames. It’ll be a lot easier to balance your statements and track expenses this way.
- Leave a trail. You should be able to retrace your company’s financial activities easily. Keep business and personal accounts separate. Keep your checks and invoices in order, and don’t skip numbers. If you need to go back and check something later, it will be much easier this way.
- Use software. Even for a very small business, using a bookkeeping software program will make your record keeping much simpler and more organized. Let’s face it – the time of the old ledger and pen system has come and gone. You can do everything you need to do, and even back up all of your important records, if you do it on your computer.
These basic bookkeeping tips for small business owners are a great starting place for entrepreneurs. If you could use a little small business advice, contact Acceler8. We are your tax, bookkeeping, and small business advisors. Call Acceler8 to learn more today.