I run my own business and I think it’s fun to work with other business owners who have boldly chosen to make their own way. Many of my clients are doing quite well and are glad they made the decision to create their own business. If you are a new business owner, or you are thinking of becoming one, please take your bookkeeping practices very seriously right from the start and save yourself a ton of stress.
Solid bookkeeping is absolutely necessary for business success. Conversely, sloppy bookkeeping can doom even a very profitable business. IRS computers can easily flag oddball tax returns and their auditors will slap hefty fees on a business just like that. Bankers will reject loan applications, even for profitable businesses, simply because the books don’t seem right. For the same reason, business insurers will be reluctant to cover assets or will increase premiums. Not good.
So, in an effort to be the best darn bookkeeper you’ve ever known, I give you these five common-sense bookkeeping tips that can help you run your business like a pro.
Tip #1: Get A System
Put a good, reliable system in place. Depending on the size and complexity of your business, you may or may not need accounting software. If you simply need to track money coming in and going out, and you don’t need to print invoices for customers on-the-spot, you can probably get by with an Excel spreadsheet or even a paper ledger.
If you want to track more than just a handful of expenses and some income, and want to be able to run reports that show things like profitability and outstanding invoices, I recommend QuickBooks Online. I use QuickBooks Online (qbo.intuit.com). With QBO, you can have your bank and credit card transactions automatically feed into your system, plus loans, inventory, locations, when bills are coming due, setting up recurring invoices, and more. Whichever method you choose, just make sure you create a workable system to track your income and expenses.
Tip #2: Get Help Setting Up Your System and Learn How To Use It
If you decide to invest in accounting software, hire a qualified professional to help you set it up and train you to use it correctly. If it’s not set up correctly from the beginning you may make a mess. Worse, if you think you know exactly what you’re doing, but you do it all wrong, you’ll wind up with an even bigger mess. Garbage in, garbage out. These messes can be time consuming and costly to untangle – far more expensive than paying for a little help up front to get started on the right foot.
Further, if you don’t hire someone to help you untangle everything, then the numbers you provide to your tax preparer may be incorrect and you might pay higher taxes than necessary. Plus you may get a call from an IRS agent because your funky numbers triggered an audit.
Tip #3: Make Entries On A Regular Basis
So, you’ve put in a long, hard day serving customers and you put off your bookkeeping entries again. And again. Suddenly you’re so far behind that you can’t figure out how to get caught up and you hire someone to help you unravel everything. This is call forensic accounting, and it’s extremely time consuming (read: expensive). Avoid this. Please.
Once your system is all set up and ready to go, commit to updating it on a regular basis. I recommend daily or weekly updates, so you’re dealing with things while they’re fresh in your mind. This is far less stressful and far more efficient.
You know yourself better than anyone, so maybe every few weeks, or once per month works better for you. Decide what will work best for you and commit to it.
Tip #4: Be Honest With Yourself
I don’t know who first said it, but one of my favorite sayings is, “Just because you can, doesn’t mean you should!” Anyone can attempt to do their own bookkeeping, but not everyone should. Here’s the deal…if your books are done correctly it can save you time, money, and stress. Let me say that again – if your books are done correctly it can save you time, money, and stress.
Most of us who are self-employed go into business for ourselves because we are outstanding at something. There are other reasons, too, of course. But we love that one thing that we do better than anyone else, and that’s what we enjoy spending our time doing. The reality, though, is that as small business owners we wear many hats, and often times we’re not good at all of the other things that need doing to run a successful business. Bookkeeping is often one of those things – either you don’t know or understand accounting and aren’t interested in learning, or you don’t care to spend your time on it.
If you’re a detail oriented person with a good understanding of accounting and the financial aspects of running your business, and you have the time to do your own bookkeeping, you may be a good candidate for doing your own books. However, even if you are that person, your time could be better spent growing your business.
Most of my clients would rather grow their businesses than spend time doing their books. So they hire me to do their bookkeeping for them, and this situation more than pays for itself.
I’ve also had clients tell me I’ve saved them hundreds of dollars both on the tax bill to their CPA because their books are accurate and do not need adjustments. They also save on their federal and state taxes because income and expenses have been accurately recorded, making it much easier for their tax preparer to find ways to reduce the tax bill.
Tip #5: Use Your Financial Info To Your Advantage
This is uber-important: pull reports regularly, then read and understand them. If you do, you will stay on top of your business. Here’s just a few examples:
- Run a profit & loss (P&L) report on a monthly basis to see if you’re making or losing money, and to analyze expenses.
- Run a monthly comparison P&L to see if there are certain months that you’re more profitable, or if there are certain clients/jobs that are more profitable than others.
- Run accounts receivable (A/R) aging reports on a regular basis to see who the late payers are and stay on top of your collections.
- Run an accounts payable (A/P) aging report to see which bills are coming due.
If you’re applying for financing, your lender will request up-to-date reports. This is also true for most business insurance applications. Become practiced at running and reading reports and you’ll not flinch when your banker or insurance agent wants financial info on your business.
Get your business under your thumb by following these five tips. If you want to talk things over, please give me a call or send me a note. Thanks, and good luck with your business!