As a small business owner, one of the many things you are probably starting to learn about is bookkeeping. If you’ve been in business for some time, there’s a good chance you already know the basics to one degree or another. Even if you’re just starting out, there are some helpful basics that are good to keep in mind:
- Open up a separate bank account for your business.
- Use a bookkeeping software.
- Keep and store your receipts.
- Include your invoices in your bookkeeping software.
- Review your financial statements every month.
Open Up a Separate Bank Account for your Business
Although it might seem inconvenient to have to open up a separate bank account for your business, it is an important point and well worth the time spent. It’s your first step towards having good bookkeeping, and for a number of reasons will benefit you and your business.
It makes keeping proper records much easier for your business. By running all business income and expenses through your business bank account, it makes it simple to see which transactions are business related and not personal. If you run both personal and business expenses through the same account, can you imagine the time it takes to go back at a later point to sort through which expenses are personal or business?
If you are working with a bookkeeper or accountant, keeping your business transactions separate will make their job much easier, and prevent mistakes. It will also help ensure you get to maximize your tax deductions as much as possible.
Even if you are a sole proprietor running a side hustle, it is still a good idea to open up a separate account.
Use a Bookkeeping Software
This brings us to another vital step – your bookkeeping software! If you are a solopreneur running a side hustle with just a few expenses here and there, you might be able to get away with using a spreadsheet. But generally speaking, it is always worth the money to invest in good bookkeeping software.
Some of the big names out there are Quickbooks, Xero and Sage (formerly Peachtree). Depending on your business, and what your needs are, there are different levels and pricing. There is even a program called Wave which has a free software version available – of course you wouldn’t get all of the features that the paid softwares would give.
Having a bookkeeping software saves a lot of time with categorizing transactions, allows you to connect your bank directly to the software to pull in transactions, allows you to automate many processes and run many reports. The software will also enable you to run reports to see how your business is doing financially, which helps you make good business decisions.
Keep and Store Your Receipts
Keeping receipts is another simple but very important part of keeping good bookkeeping records. Fortunately, with all of the technology available, you don’t have to worry about stuffing them all in a shoebox. There are several inexpensive apps that will scan your receipts and automatically sync them with your bookkeeping software – even Quickbooks Online has this feature built in directly to the software.
While you might not always have time to scan each receipt on the spot, make sure you hang onto them and keep them all together until you have a chance to scan/upload them to your bookkeeping software.
In the event that you are ever audited, you will need your receipts to prove your business expenses – fortunately the IRS doesn’t require you to keep the hard copies and will allow you to store just the digital versions.
Good bookkeeping, including having your receipts stored and matched up with transactions, keeps things in good shape in the event that you are ever audited by the IRS. While getting audited is never fun, having your records in order will help you immensely and help you prove all of your business expenses.
Include Your Invoices in Your Bookkeeping Software
If you send invoices to your customers, make sure to add the invoice to your bookkeeping software. Generally speaking, you should be able to send the invoices directly through your bookkeeping software if you want to keep it as simple as possible. If you use a separate program to send invoices, check to see if that program will sync up with your bookkeeping software to save yourself the step of having to add it to your books.
Keeping track of your invoices will make it much easier to see who owes you money, who is paying you, etc. You wouldn’t want to forget to collect money from someone who owes you! You’ll also be able to run reports in your bookkeeping software that allow you to see who has overdue invoices, and how much you’re owed.
Review Your Financial Statements Every Month
One of the most important parts of bookkeeping is using this information to understand how your business is doing financially! There are three main reports that you should review at least once a month, depending on the size of your business. They are the Balance Sheet, Income Statement and the Statement of Cash Flows.
While each serves its own purpose, looking over all of them together will give you a pretty good idea of how your business is doing. If you have a bookkeeper or accountant, they would ideally be going over them with you to answer any questions or give advice. If you are doing your own books, you can find some great videos on YouTube that will help you decipher and interpret these statements.
While of course you should be spending the majority of your time creating and running your business, spending a bit of time each month to know how your business stands financially is well worth the time!
Do you have any questions, comments or feedback? Email us at contact@lucrativebookkeeping.com.
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