“It’s not about ideas, It’s about making ideas happen”
Entrepreneurs often believe that profit is what matters most in a new enterprise. But profit is secondary. Cashflow matters the most. When you are an entrepreneur, there are a lot of tasks and processes that demand your attention.
On top of regulating employees and payroll, your accounting services must be up to par. While running a business, you need to know everything about your business’s finances, not just your bank account balance. Bookkeeping helps you keep the books up-to-date and manage your cash flow.
Millions of small business owners and startup entrepreneurs are masters at creating great products and services, building effective teams, and winning over customers. However many of them would probably flunk the basics of bookkeeping.
In this article, we will walk you through the basics of what bookkeeping is, why is it important, and the seven habits that all entrepreneurs should follow.
Table of contents: Bookkeeping Basics for Entrepreneurs
What is Bookkeeping?
The process of tracking all of your company’s financial transactions, so you can study exactly where your business is spending money, where your revenue is coming from, and which tax deductions you’ll be able to claim.
One of the crucial decisions you have to make when setting up your bookkeeping system is whether or not to use a cash or accrual accounting system.
If you are operating a small business by yourself from home or even a larger consulting practice, you might want to stick with cash accounting. With cash accounting, you record your transaction when cash changes hands.
On the other hand, If you are going to offer your customers credit or request credit from your suppliers, then you have to land upon the accrual accounting system.
Using accrual accounting, you record transactions immediately, even if the cash doesn’t change hands during the sales or purchase, such as in the case of Accounts Payable or Accounts Receivable.
Why is Bookkeeping important?
No matter how talented and hard-working you are in other areas, you won’t be able to run your business for very long without a sound knowledge of your finances.
Throughout the year there are several different taxes a small business needs to pay, and bookkeeping means you can correctly calculate how much is due.
This helps you prepare for the financial year ahead and allows you to think about what your next moves are – whether that’s growing your business or setting up a limited company.
Anyone who is self-employed needs to file a Self Assessment tax return every year. Organized bookkeeping will help you in things like filling your returns early and effectively.
If you hire an accountant, they’ll still expect you to keep on top of your bookkeeping (such as getting your expenses) as they simply can’t proceed without knowing your income and outgoings.
When perfect bookkeeping and track of records, your accountant can help you with things like making tax-efficient decisions such as how much to pay yourself and what business structure is right for you.
It’s also worth remembering that if you dream of expanding your business, you’ll need to be able to prove its profitability to investors, new partners, and banks. Good bookkeeping practices can help you with this.
Having bookkeeping is like being able to understand how much gas you’ve got in the tank. Bookkeeping helps you keep track of what’s come in, coming in, what’s gone out, and what’s going out. So you don’t have to guess. Otherwise, you’re puttering around on a motorcycle, not knowing when your gas tank will run out.
1. Keep personal and business finances separate
Co-mingling expenses might not seem like a bad idea at first, but it can quickly cause huge headaches for your small company. From the get-go, you should set up a business bank account to keep personal and business expenses separate.
Your business can also benefit from setting up a business bank account. A business bank account can help you:
- Stick to your business budget
- Organize accounting records
- Keep your business finances in order
In some cases, separating funds is not something your business can opt-out of. If your business is an LLC or a corporation, you must open a separate account for business.
2.Automate as much as possible
It’s no secret that automation can be a lifesaver for small business owners. The more you automate, the more time you will have for your business.
To streamline your accounting responsibilities, consider automating your accounting process with accounting software. With software, you can say goodbye to spreadsheets and manually crunching numbers.
While searching for bookkeeping software, look at things like storage, ease for you, and security. Make a list of things that are must-haves for your business, like certain features, pricing, and reports.
Don’t rush into purchasing software. Do your homework to find out what software will best fit the needs of you and your business.
3. Keep thorough records
Organizing and keeping accounting records like business invoices, receipts, and expenses can make or break your business’s books. If you fail to keep accurate records, the financial condition of your company can suffer.
If you’re a fan of keeping paper records, store them in a secure and safe place (e.g., a locked filing cabinet). And, make sure you keep your paper accounting records organized using different labels and sorting strategies (e.g., chronological order).
Come on, being in the 21st generation, you have to go electronic instead. Keep paperless versions of accounting information on your devices or in the cloud for safekeeping.
To ensure you protect your accounting records, consider keeping both a paper and paperless version. That way, you have a backup in case accounting information is destroyed, misplaced, or lost.
4.Set reminders for deadlines
As a busy business owner, it can be easy to lose track of time and miss deadlines. As soon as you know it, another month or year has gone by.
Try setting reminders to avoid missing deadlines of tax returns. Add business tax return due dates and other reminders to your calendar to ensure you don’t miss any upcoming due dates. You can even use a digital calendar (e.g., Google Calendar) to track important dates and set up reminders for yourself.
Plan, and set time and money aside for your business taxes. That way, you can pay your tax liabilities on time and steer clear of deadline-related penalties.
5.Leave an audit trail
An audit trail helps you retrace your steps in accounting. An audit trail is a set of documents that back up the transactions you record in your books. Your trail can help you track down transactions and verify they’re correct. Audit trail documents can include things like purchase orders, invoices, and estimates.
Creating audit trails in accounting can help your business prevent fraud, improve accuracy, and find missing transactions. To ensure your small business accounting records are as accurate as possible, consider keeping an audit trail.
6.Track business expenses
It can be difficult to anticipate certain expenses. Some expenses you can forecast, while others are unexpected. But if you plan and prepare for the unexpected, your business will be much better off in the long run.
When it comes to your books, keep a thorough record of all your expenses, such as supplies, inventory, insurance, and utilities. And, come up with a game plan on how you will handle unforeseen expenses. That way, you can better predict larger expenses and not be caught off guard in the future.
7.Keep your books at the top of your priorities
As a small business owner, you have a million and one things to do. It can be tempting to push your books aside to focus on running your business. But if you want to keep your business on track for success and keep your financial ducks in a row, prioritize your books.
From day one, keep your books up-to-date and organized. Try to make time to review and update your books, if you try to avoid your books every time, so you can avoid accounting tasks piling up.
Add transactions into your books regularly (e.g., once per week). The more frequently you keep up with accounting, the less of a chore it will be.
Should you leave it to the professionals?
It might be insanely boring to get all the records done, but it’s also the easy part. A professional will make sure you do not end up breaking tax rules.
It makes sense to consider appointing an accountant the moment the toiling over your paperwork costs your business. By putting an expert in charge, you’re freeing yourself up to run your business how you imagined it would be without all the complicated number-crunching getting in the way.
When you use our online bookkeeping service at ProfitBooks, you will spend less time analyzing your financial reports and more time making decisions that affect the growth of your company.
With real-time financial reporting, you can create forecasts and make financial plans accordingly. Instead of focusing on keeping track of your books, You will spend more time determining ways to increase your sales and expand the business.
The best part is, we provide easy-to-use accounting software free with our remote bookkeeping services.
If you want to outsource your bookkeeping, contact us today.
