Bookkeeping Tips for Small Businesses

Running a small business involves juggling many responsibilities, and managing your finances is one of the most critical. Effective bookkeeping is not just about keeping your business running smoothly—it’s about laying the groundwork for long-term success. Whether new to entrepreneurship or a seasoned business owner, mastering your bookkeeping practices is essential for maintaining your financial health. Here are some tips.

Separate Business and Personal Finances

Keeping your personal and business finances separate is a fundamental step in managing your books effectively. For instance, let’s say you’re running a small bakery out of your home. If you’re using the same credit card to buy business supplies (like flour and sugar) and personal groceries, it can become challenging to track expenses accurately.

Instead, open a dedicated business bank account and get a business credit card. There are many great options for small businesses, offering no minimum balance requirements and easy integration with many accounting software programs. Some may even provide promotional benefits, so look around. Remember that you want a bank with which you can build a relationship. Online deposits are a must in today's market, but having an actual human in the community is priceless.

Track Every Expense

Even small expenses can add up quickly, and losing track of them can lead to an incomplete financial picture. For example, if you’re a freelance graphic designer, you might have subscriptions to various design tools like Adobe or Canva. Tracking these recurring expenses is essential so they don’t slip through the cracks.

An expense-tracking tool like Expensify or software like QuickBooks can make this process easier. They allow you to scan receipts and track your spending automatically, helping you stay organized and ensuring that no expense goes unaccounted for.

Automate Where Possible

Automation can be a game-changer for small business owners. Let’s say you run an online store. Automating your invoicing and payment reminders can save you countless hours each month. Software like QuickBooks Online offers automation features that allow you to set up recurring invoices, automatically track payments, and even sync your bank transactions with your accounting records. Plus, being online means you can track and manage your business from anywhere.

Another excellent tool for automating bookkeeping tasks is Xero, which features automatic bank feeds, bill payment reminders, and integration with over 800 business apps.

Stay on Top of Invoicing

Cash flow is crucial, especially for service-based businesses. For example, getting paid promptly for your work is vital if you're a consultant. One way to encourage timely payments is to send invoices immediately after a project is completed and make your payment terms clear.

Consider using an invoicing platform like Fresh Books. This platform allows you to create and send professional-looking invoices and includes features like automatic payment reminders and the ability to accept online payments directly through the invoice.

Regularly Reconcile Your Accounts

Reconciling your accounts means ensuring that the transactions in your bookkeeping system match your bank statements. For instance, running a coffee shop might involve comparing your daily sales with your bank deposits to ensure everything lines up.

Tools like Wave offer easy-to-use reconciliation features. Wave automatically imports your bank transactions, simplifying comparing your records and catching any discrepancies.

Plan for Taxes Year-Round

Tax time can be stressful, but planning can make it much more manageable. You might have quarterly estimated tax payments if you’re a small retail store owner. Setting aside money for these payments throughout the year can help avoid a last-minute scramble.

IRS.gov offers resources to help you understand your tax obligations, including a Tax Calendar for small businesses that can help you stay on top of deadlines. Additionally, TurboTax Self-Employed can be a valuable tool for managing your taxes throughout the year, offering features like expense tracking and real-time tax estimation. Also, work with your CPA to decide what’s best. If your relationship with your CPA isn’t substantial, it might be time to find someone you are more comfortable speaking with.

Review Your Financial Statements Regularly

Regularly reviewing your financial statements is critical to understanding your business’s economic health. For example, suppose you own a small marketing agency. In that case, you might notice that your cash flow statement shows a steady increase in expenses without a corresponding increase in income during certain times of the year. This could signal that it’s time to reassess your pricing or look for cost-cutting opportunities.

Online bookkeeping services that provide detailed financial reports, including profit and loss statements, balance sheets, and cash flow statements, plus (quick plug) a monthly review with a professional bookkeeper, can help you understand your financial data and make informed decisions.

Most importantly, do what works best for you and your business.

Sound bookkeeping practices are the foundation of any successful business. By separating your finances, tracking every expense, automating where possible, staying on top of invoicing, regularly reconciling accounts, planning for taxes year-round, and reviewing your financial statements, you’ll be well on your way to financial success, whether you handle your books yourself or work with a professional (like me), controlling your finances builds a more resilient business.