Running a small business is not easy. Numbers say that 1 in 5 businesses in the United States fails in their first year, with various reasons cited such as limited finances and lack of manpower. And it makes sense because - from tracking inventory to ensuring bill payments to recording accounts receivable to ensuring client satisfaction - there is a lot on a small business owner's plate on a day-to-day basis. All of these processes cost both money and time.
Considering the above, there is certainly a difference between businesses that thrive and those that falter. Too many business owners make the mistake of ignoring business accounting protocols and end up suffering big time because of it. While there are many factors involved in the making or breaking of a small business, one way you can safeguard your venture from failure is by modernizing your bookkeeping systems.
From investing in accounting software to following best practices for optimal cash flow to hiring a professional bookkeeper during tax season, there are some proven practices we recommend small business owners to follow to ensure sound financial health. These tips are:
- Separate your personal and business finances
- Track your major expenses and income
- Choose an accounting app
- Budget proactively
- Implement access controls
- Keep accurate records
- Analyze your financial reports
Before we explain each tip above, allow us to briefly explain why good bookkeeping is so critical for a small business.
Why is Bookkeeping Important?
While it is definitely difficult to get a small business up and running, you may take a breath of relief because statistics from the Bureau of Labor reveal that around 80% of businesses that have employees will survive their first year and almost 50% would make it past their fifth year in business.
Bookkeeping forms an integral part of running any business and it is particularly critical for a small business. Why? Well, because only through it can you maintain accurate records of your financial transactions, file your taxes on time, and ensure unconstricted cash flow.
If your bookkeeping is sound, you can budget properly, organize your operations, analyze your success ratio and plan realistically, as explained here. Furthermore, it also allows any small business to meet legal requirements and financial regulations - both of which are vital for survival. You can learn more about the bookkeeping process and how to go about it here.
With such solid reasons behind the need for small business bookkeeping, we hope you are convinced to pay attention to this part of your operations. Read on to learn the best bookkeeping tips for small businesses and implement them sooner rather than later for success.
1. Separate Your Personal and Business Finances
Opening a separate business bank account seems like a no-brainer but you would be surprised to find out just how many small business owners simply forgo this crucial step when beginning their venture. They think they can fund their business from their personal account and also receive payments in the same.
Well, this can prove to be disastrous come tax season when you would have poor or no record of your business transactions to show for write-offs and other benefits. The only way to sidestep this financial landmine is to separate your personal and business finances from the get-go.
Establish a separate business bank account. Also, ensure all your business-related transactions occur in that account (and not your personal savings account!). Down the line, following this one straightforward top will help you in unimaginable ways financially.
2. Track Your Major Expenses and Income
Bills can be overwhelming, especially if you have several receipts coming in and going out from day to day. However, it is equally important to keep track of your incoming bills as well as outgoing expenses, particularly major ones. Do not let any transaction go undocumented in your books because it would come to haunt you later when you sit down to reconcile your invoices and find gaping holes in place of neatly recorded figures.
Another reason why you should track your expenses and income is to get clear insights into your spending and earning patterns. Only when you have the numbers in front of you will you know whether you are breaking even or overspending. With clarity afforded by expense tracking, you can make better financial decisions.
3. Choose an Accounting App
Most bookkeeping and accounting work has to do with numbers and requires accuracy. Whether it is preparing invoices, recording income in your books, payroll, or bank reconciliation - all of these tasks require keen attention to detail that is just too demanding if you rely on manual work.
In the modern age, the solution for this dilemma is to go digital - that is, purchase an accounting app like ZarMoney that can help you automate your bookkeeping system. Through suitable accounting software, you can count on speedier as well as more accurate accounting processes. You can save time spent on admin tasks such as entering data and let the app handle all such work for you at an affordable price.
4. Budget Proactively
Nothing shakes a small business' foundation than poor budgeting. If you regularly find yourself battling problems of cash flow, it is time to step back and consider budgeting proactively. Beginning from tracking major expenses, make sure to record all your incoming and outgoing bills for every month. Just knowing what money you owe every month (utility bills, rents, taxes, etc.) will prepare you to manage your expenditure accordingly.
5. Implement Access Controls
Not everyone in your small business team needs access to all your financial records, particularly if they relate to customers and are confidential. When it comes to sensitive financial data, it is important to know when and which team member to give access to.
Make sure you have access controls in place and password-protected information to ensure financial integrity. This will also safeguard you from data breaches and inadvertent loss. Fortunately, many accounting tools offer this capability. You can easily activate it and automatically grant or remove access for team members per your need.
6. Keep Complete and Accurate Records
For any business to meet financial and legal regulations, it is important to provide an audit trail of transactions completed either with customers, vendors, or other parties. You can fulfill this requirement easily by keeping complete and accurate records of all your business dealings. Make sure to record every income and expense in your database. Also store receipts (paper-based or digital, depending on your system) as proof.
If you invest in an accounting app, it becomes infinitely easier to maintain clean financial records. The app removes the hassle and manual work from this process. For instance, it can import transaction details from your connected business bank account automatically, eliminating errors and discrepancies.
7. Analyze Your Financial Reports
In addition to your financial statement and business credit, understanding your business's financial performance is critical for any small business owner if they are in for the long haul.
Being short-sighted simply won't help you cut it in the competitive markets out there. One surefire way to develop a keen understanding of your business's financial health and forecast its future is by analyzing your financial reports. Learn how much you spent, where you made profits, and where you suffered losses. Next, devise ways to cut back on unfruitful projects and improve your bottom line through data-based analytics.
Conclusion
Good bookkeeping can prove to be the success ingredient your small business needs. We advise you to carefully consider the tips we have described above and start implementing them to defend your business from unnecessary loss.
If you are looking for an accounting app, try out ZarMoney for free. This accounting tool leverages automation to help you manage all parts of bookkeeping including invoicing, billing, bank reconciliation, financial statements, expense tracking, financial reports, and more.
