Good bookkeeping is essential to keep your business thriving—not just surviving.
Badly tracked finances can cause your business a world of problems—from poor cash flow to improper tax filings and beyond. These kinds of problems can put a young business at serious risk.
Good bookkeeping habits, on the other hand, can help a business thrive—and not just survive.
1. Get professional help to prepare tax returns
Business owners are pulled in a dozen different directions. That’s why it makes sense to outsource work you don’t have the expertise or time to do. If you’re like many entrepreneurs, you likely went into business to pursue a passion, not to become an accountant.
“Sometimes outsourcing the job to somebody who can do a quicker and better job is much smarter than trying to tackle it yourself,” Smith says.
Professional accountants can do more than just ensure your returns pass muster. A trained financial eye can spot ways that your bookkeeping processes—and perhaps your business itself—can be improved.
For example, most businesses aren’t aware of all the tax deductions they can claim to ultimately reduce their overall tax burden. With a trained eye, Smith was able to able to help one of her past clients save over $1,000 on her return, which took her from owing money to the IRS to receiving a small refund.
2. Don’t go entirely “hands-off”
Outsourcing your bookkeeping doesn’t mean you should leave it entirely to somebody else. “You’ll want to review reports, understand what’s happening with your business, and ask the right questions (when you don’t),” Smith says.
No matter your level of accounting expertise, it is beneficial to your business for you to understand as owner some of the basic business numbers, including profit, trend in expenses, accounts receivable, profit per customer, and how your client funnel works.
3. Document your processes
For her own business, Smith has written documents that explain how bookkeeping processes should run. “No matter who looks at it, it’s done my way,” she says, noting these processes prevent confusion and answer questions before they’re asked.
Consistency is key for good bookkeeping and can help you spot errors later on, since you’ll have a good idea of what may have gone wrong.
4. Keep expense receipts
You can’t know how much you’re spending on your business if you don’t keep receipts. This is somewhat straightforward for credit card purchases, since you’ll have both receipts and monthly statements against which to check them.
Where things can get tricky is if you aren’t careful with cash expenses. These receipts matter even more since there are no backup statements. Some people keep a small notebook with them to log cash expenses as they’re incurred. Better yet, entrepreneurs could follow Smith’s lead—she uses an accounting app on her phone to snap pictures of her receipts as she goes, and doesn’t keep the paper copies.
5. Track your receivables
It’s one thing to issue invoices, but it’s another to ensure your invoices are paid. Keep up-to-date logs of your invoices and the status of each—sent, received, paid, partially paid, and late. Some accounting solutions can even keep track of invoices and flag late and unpaid invoices automatically.
6. Ask your accountant how you can work as a team
Business owners often look at their accountants as just another expense, and only visit during tax crunch time. A trusted accountant, however, can be a key ally in your business, helping to guide its path to success, shaping it to provide better returns, and helping spot potential issues in the business before they arise.
Entrepreneurs should approach their accountants as business partners, not just tax prep, and find someone who can offer insight into the business. A great accountant can help take a business to the next level.
Would you like to mention any bookkeeping tips that didn’t make it into this post? Share in the comments below.