Although it can be tedious, bookkeeping is essential for small and large businesses alike. According to research at Griffith University, one critical factor in predicting a small business’s longevity is the owner’s financial literacy, including accounting knowledge.
Given that the US Bureau of Labor Statistics reports that 20% of new businesses fail in their first year, with 50% failing in their first five years, you’ll want to do everything you can to keep your small business afloat. This includes excellent bookkeeping.
Given its importance, here are 11 bookkeeping tips for small business owners you can start using today.
Often referred to as The Golden Rule of business, it’s essential to keep your personal finances entirely separate from your business ones. Even if you’re self-employed in a freelancing-type role, where the line between company and personal blurs more easily, keeping transactions separate is essential.
How do you do this? Importantly, have separate credit cards and bank accounts for business transactions. Any charge that pertains to your business should go through those accounts.
Separating your transactions ahead of time makes bookkeeping maintenance much easier, and it also makes determining personal and business taxes more simple. Sorting between business and personal transactions is time-consuming and completely avoidable.
We’ll have suggestions for some of the best business credit cards and bank accounts later in this article.
The days of by-hand bookkeeping are over. Manually entering data and balancing numbers is time-consuming and irrelevant -- instead, look for cloud-based bookkeeping software.
Doing your business (and personal, if you choose) bookkeeping in this manner allows your bank accounts to sync with the software and automatically download transactions. Plus, your critical financial data is backed up to the cloud if something happens to your devices.
On the hunt for bookkeeping software? RAYL has you covered. Our platform will allow you to track expenses, purchases, generate reports, and anything in between. RAYL.Apptive will also give you access to CRM, website, marketing, and other tools to help your small business thrive once fully launched. Learn more!
If you’re operating a C-Corp or an S-Corp, you’ll pay yourself a salary and run it through payroll like anyone else. However, even LLC owners, freelancers, and other small business operators should pay themselves a salary (although classified as an owner’s draw and not run through payroll).
Paying yourself a wage is one of our bookkeeping tips for small businesses because it reinforces two notions:
Both of these are incredibly important for getting you deeper into the mindset of being a successful business owner. Try this bookkeeping tip for small businesses right away and see what impact it can have.
While you don’t need receipts for your typical transactions, the IRS does require them for business tax deductions if you get audited.
You’ve got two options for storing your receipts:
The second option is more efficient and ensures you don’t lose these records. This is one of the most straightforward bookkeeping tips for small businesses that can have a significant impact. Most accounting software includes option two for free.
Even the best of us sometimes make a business transaction on our personal accounts. To keep business and personal separate, reimburse yourself. You can make a transfer or write a check.
Reimbursement should be well-documented, including the purpose, vendor, and date.
While you could start out doing business bookkeeping yourself, it’s best to hire someone specializing in bookkeeping for your type of business. And even if you do your bookkeeping initially, there will come a point where it’s so complex and involved (because your business grew!) that you need to outsource it.
Among all these bookkeeping tips for small businesses, this one may feel unnecessary. However, this can save you a lot of time and money down the road.
Not only will a bookkeeper allow you to spend that time elsewhere, but they’ll be well-versed in your bookkeeping software and can keep your finances even more organized. Avoiding any mistakes now makes tax season that much easier.
Here are some tasks your bookkeeper can take care of on your behalf:
Not sold on hiring a bookkeeper? That may be fine for now, but consider outsourcing payroll. According to one study, 50% of small businesses outsource payroll, and for a good reason!
Filing payroll tax returns, issuing paychecks, and withholding employment taxes is a tedious process that can be passed off to someone else at a reasonable cost. If you opt to do this, it’s best to open a separate account for payroll; this way, your payroll provider won’t have access to your primary business bank account.
This is one of many bookkeeping tips for small businesses that may feel unnecessary, but once you do it, you’ll understand its importance.
Any cash given to your business should be deposited into the business bank account before being spent. This way, you can keep track of exactly how that money is spent and on what.
Should you spend cash before being deposited into the account, you may forget that a customer paid you that cash (yikes!) or forget to track the purchase. Both of these can be embarrassing or costly blunders.
Even when it comes time to outsource your bookkeeping, stay involved in the monthly, quarterly, and other reports. None of these bookkeeping tips for small business owners will help if you don’t take an active interest in your company’s finances.
In reality, everyone makes mistakes, including your bookkeeper. You’ll want to check that everything looks correct, and you also want to stay apprised of your company’s financial health.
Further, as your organization grows and finances become more complicated, you can implement structured “checks.” These can include having a second person check the details of bills and statements or having someone reconcile cash payments weekly and at the end of the month.
Unlike being on a W2, taxes aren’t automatically withdrawn from your earnings. Instead, you’ll have year-end business taxes that come in bulk.
Setting aside money regularly to accommodate these taxes prevents you from scrambling when tax season comes around. The last position you want to be in is one where you need a loan to cover your taxes. This is one of many bookkeeping tips for small businesses you want to implement immediately.
As your business grows and becomes more complicated, a planned-out budget becomes essential. This is one of many bookkeeping tips for small business owners that is more relevant towards future success.
Examine your profit and loss (P&L) report from the last few months. From there, determine the following:
From here, forecast cash flow into the subsequent specified period, usually quarter. At the end of that time, make sure to compare the predicted results to the actual ones. Over time, your predictions will become more accurate.
Without a budget, you won’t recognize a cash flow problem until it’s already happening, and at that point, it becomes much harder to solve. Like many of the other bookkeeping tips for small businesses, this one prevents future problems by planning ahead now.
Remember The Golden Rule of bookkeeping tips for small businesses: keep business and personal banking separate. To do so, you need business bank accounts. Here are some suggestions.
What if your bank account could also help with bookkeeping, sales automation, managing subscriptions, timesheets, and more? With RAYL.Apptive, once RAYL has fully integrated its suite of services, you get access to a business bank account and bookkeeping software, but you also get access to operations, sales, marketing, CRM, communications, big data, and other software.
RAYL also offers financial and payment software for SMB owners. If you’re looking to consolidate and save on those monthly subscription costs, check out RAYL today!
Novo offers a free online business checking account with unlimited integrated invoicing, refunds on ATM fees, and unlimited transactions. There are no monthly fees, ACH transfer fees, or incoming wire fees, and you’re able to do online bill pay and mobile check deposit.
Novo integrates with essential business tools such as TransferWise, QuickBooks, and Stripe.
Note that Novo does not accept traditional cash deposits, so this may not be for you if you handle a lot of cash.
LendingClub’s business checking account offers unlimited ATM fee reimbursements, mobile banking tools, and debit card rewards (up to 1% cashback on purchases).
LendingClub offers 0.10% APY on account balances greater than $5,000, as well as invoicing and online payment software.
Note that LendingClub charges a $10 monthly fee only waived on account balances with a monthly average of over $5,000. There are also other incidental fees, such as a $25 fee for stop payments, nonsufficient funds, or returned items.
Chase business checking is perfect for brick-and-mortar businesses. You gain access to Chase’s extensive ATM and branch system (over 16,000 ATMs and 4,700 branches), online and mobile banking, and other small business services.
Account-holders receive unlimited electronic deposits, the ability to accept credit card payments in the mobile app, and a potential $300 sign-up bonus. There’s a $15 monthly fee, waived with account balances over $2,000.
If your business outgrows this checking account, you can upgrade to Chase’s Performance or Platinum checking accounts.
This Chase account limits fee-free cash deposits to $5,000 per month, and you receive 20 fee-free physical transactions each month.
One of many essential bookkeeping tips for small businesses is to keep personal and business finances separate, including business credit cards. Here are some of the best ones.
The American Express Blue Business card allows you to earn a $250 statement credit after making $3,000 in purchases in the first 3 months. You earn 1-2% cash back on eligible purchases (maximum $50,000 per year, after which you earn 1%).
This card has no annual fees.
Capital One’s Spark Cash Plus has an enticing intro offer and cashback rewards. Earn up to $1,000 in cash bonuses -- $500 after spending $5,000 in the first 3 months, and another $500 upon spending $50,000 in the first 6 months.
There’s an annual fee of $150, but this can quickly be recouped and then some with Capital One’s unlimited 2% cash back on every purchase.
With Bank of America’s card, you can earn 30,000 bonus points after making $3,000 in net purchases within the first 90 days of account opening. This can be redeemed for a $300 statement credit towards dining- or travel-related expenses.
This credit card offers unlimited 1.5 points for each $1 spent on all purchases. Points never expire. On travel purchases booked through the Bank of America Travel Center, you can earn 3 points per dollar spent.
There is no annual fee, making this credit card a robust choice for business owners who travel often but don’t want the hassle of an annual fee.
Using the 11 bookkeeping tips for small businesses outlined above, you can begin getting your finances in order and taking your business to new heights. The bookkeeping decisions you make now will impact your business’ success well into the future.
Still need bookkeeping software? Check out RAYL and gain access to far more than just bookkeeping tools. Learn more here.
