Bookkeeping Tips for Your New Business
Bookkeeping is often perceived as a boring task for most business owners and often neglected and left at the bottom of their to-do lists. Although bookkeeping may seem boring, it is an essential aspect in running a successful business. In fact, many businesses fail because they avoid this very aspect, which leads to cash flow issues and mismanagement of business finances. In running a new business, you want to make sure you create a great foundation to avoid future problems that could hurt the life of the business. Here are several bookkeeping tips for your new business.
1. Avoid Lumping Finances Together
One of the most common bookkeeping/accounting issues for start-up businesses is the merging of business and personal finances. Fresh business tends to place a low priority for creating separate accounts until the business grows larger, which is a serious mistake that can hurt the company down the road financially, legally, etc. Whether you’ve sold your first t-shirts or running a six-figure business - the earnings should be placed in a separate bank account.
Why? Well, not only does it make tax time easier and less stressful since there will be a clean set of books, it also creates a clear boundary between personal finances.
2. Prioritize your Bookkeeping
Running a business presents many challenges as there are many hats you will wear. However, remember that bookkeeping is a fundamental aspect of your business. Make sure you reserve time out of the week or during the month to review your financials, make sure your tax and allocations are correct, etc. If your time is limited, then it may be best to bring a credible bookkeeper or accountant on board or even outsource it. Any way you decide to go, just make sure you are prioritizing it or it can become an out-of-control mess that will be hard to clean.
3. Make Sure Your Chart of Accounts is Simple.
When it comes to bookkeeping, your chart of accounts is the foundation of your bookkeeping system. They represent every single transaction, and also your assets and liabilities. To have an effective bookkeeping system, keep your chart of accounts simple and truly reflective of the happenings in your business.
4. Set Aside Money for Taxes
Being in business the IRS expects that you pay your self-employment taxes (quarterly). In preparation for that, set aside money towards your taxes each month, generally 30% of your profits. Not paying your taxes you can incur late payments and interest from the tax authorities, so make it your responsibility that you have the money when it is there.
5. Keep an Eye on your Accounts Receivable
One of the challenges in running a successful business is making sure you’re getting paid for sales or services rendered to your customers, which is also another word for having an “Accounts Receivable”. When a business doesn’t get paid on time its flow of cash is disrupted. While you might think billing is tedious and boring, it should be a top priority because most companies fail due to poor management of cash and run into serious financial difficulties. Create a system where it makes it easy to remind customers periodically about their amounts owed to you.
6. Forecast for Major Expenses
Think about a year or several years from now about the future expenses that you will need to make. Maybe you’ll need new equipment or you’ll need a bigger office space?
It is imperative to understand a part of running a business is understanding that you will experience both highs and lows in your business and that may impact your cash flow and your ability to spend money. By forecasting the major expenses you will need to make, you will avoid using up your cash during peak months of the business and running dry during the slow months.
7. Keep Track of all Your Deposits
When it comes to running a business successfully, keep track of all of the sources of monies deposited into your business account. Whether you’re using accounting software (we recommend QuickBooks) or you use an excel spreadsheet, make sure you keep good details of all of your deposits.
This is extremely important because not all monies deposited into your business account are considered income, some may be cash investments by you as the business owner. If you miss out on keeping detailed records of business deposits, you will pay more taxes on deposits that are not business income.
For more business financial tips, please contact us.