Love it or hate it, bookkeeping is a necessity for all businesses, large and small. Having the right bookkeeping tools is important to make this job as painless as possible.
From bookkeeping apps to cloud bookkeeping services, it can be hard to know what the best practices are for today’s business needs.
We have compiled a list of important and timeless bookkeeping tips. No matter if you do cloud bookkeeping services or use some other tool, these principles will help keep your business finances straight.
Choose a Method and Stick with it
There are two main types of accounting methods: cash and accrual. Accrual accounting puts transactions on the books as soon as the transaction is made, regardless if you have the cash on hand or not.
Cash accounting (the more common method) records transactions once payments have been received. Both methods have their pros and cons, what is important is that you choose a single method and stick with it.
Typically, cash accounting is better for cash flow management, though it provides less long term clarity for the business than accrual accounting. If you aren’t sure which method to go with, stick with cash accounting.
Track EVERY Expense
No matter how small, track every expense. If you are just starting a new business, this is an extremely important habit to get into now. Track every expense and payment in a reliable and organized way.
Consider using cloud bookkeeping services for this as it will allow you to keep track of expenses on the go, rather than let them pile up throughout the days or weeks to be entered at a later time.
This is especially true for marketing expense. Typically, your marketing expenses should be between 2-10% of total sales. As you track expenses, be sure to categorize them and include the following: suppliers name, account number, expense type, date, the amount owed.
Keep receipts, credit card statements, and incoming bills to ensure you are properly managing cash flow. The great thing about a cloud bookkeeping software is that you can upload all of these documents so that you don’t have a ton of paper clutter in that shoebox under the desk.
Separate Business and Personal Finances
This is important for business and legal reasons. It is very easy for small business owners to intertwine business and personal expenses. As a business owner, it is your duty to ensure that personal and business finances never mix. This will ensure you have a clear picture of what your business cash flow actually looks like. Additionally, “piercing the corporate veil” (using business funds for personal reasons) can leave you open to personal liability lawsuits, should any arise.
Keep Monthly Reviews
It is important to have a constant pulse on your business bookkeeping. Performing a monthly accounting review will help you see patterns and recognize small problems with your business cash flow before they blow out of proportion. Business books should be balanced at least once each month.
Automate Everything Possible
This is especially important with bookkeeping. One of the best parts of having cloud bookkeeping services is that automation becomes so easy. It is very easy to forget to record expenses because, as a business owner, there is a lot on your mind. Having automation in your bookkeeping systems simplifies and makes efficient what is usually considered an arduous task.
Frequently Backup Financial Records
This is another area where cloud bookkeeping services shine bright. Keeping your financial records backed up is crucial to any business. This protects against obvious physical threats and also against cyber attacks such as ransomware.
Limit Your Accounts Receivable
Many companies fail to follow up with customers when accounts are past due. They either override credit and end up with bad debt or don’t keep accurate billing records.
Either way, the cost of these failures is high as you end up missing out on significant revenue. Revenue that could be used to meet payroll, or grow your business.
Adopt strategies that limit issues with accounts receivable. This will pay huge dividends in the future as your customers will always be current with money owed to you.
By implementing these and other GAAP principles, you will see your business off on the right foot.