Small business owners set their own schedules and, if they’re successful, control how much profit they take home. But with that independence also comes more responsibility—responsibility for the welfare of their employees, for the profitability of their business, and ultimately (if sometimes indirectly), for paying the right taxes and maintaining accurate financial reports.
These tasks are high stakes—incorrect financial records or tax filings can lead to losses, fines, or litigation. By maintaining accurate and up-to-date bookkeeping, you can protect your business from these setbacks.
What is bookkeeping?
Bookkeeping is the process of recording a business’s financial transactions. Some small business owners handle bookkeeping themselves, while others hire professional bookkeepers to do the job. Whichever route you choose, it’s crucial tomake sure that your books are accurate和最新的。
7 small business bookkeeping tips
Here are some tips for small businesses to help the bookkeeping process go smoothly.
- 选择正确的记账系统
- Choose the right bookkeeping software
- Separate personal and business finances
- Stay up to date and outsource if you can’t keep up
- Stay compliant with tax laws
- Manage cash flow
- Perform regular financial checkups
1.选择正确的记账系统
Businesses have two ways to keep their books: manually or digitally.
- Manual bookkeeping.Manual bookkeeping requires recording all transactions by hand in physical books. It has the advantage of being relatively inexpensive upfront and the disadvantage of being prone to human error, requiring correction that can result in unexpected costs down the line.
- Digital bookkeeping.This involves software and computers. It can save time and prevent errors, but new users often face a learning curve. Some versions of bookkeeping software are free, while others can cost several hundred dollars a month, depending on the complexity of your bookkeeping needs.
Once you have the right bookkeeping system in place, avoid changing it if possible. Changes can increase the chances of errors, because there is a possibility of reentering data incorrectly during the switch.
2. Choose the right bookkeeping software
If you go with a digital bookkeeping system, select the software that best matches your business needs. There are hundreds of software options available at different prices and with varying features.
For businesses with specific or unique accounting needs, it may be helpful to use open-source software, which lets users change and customize a software’s underlying code. To help small businesses navigate between the different software options, Shopify has compiled a list of theeight best accounting software programsfor small businesses.
3. Separate personal and business finances
For small business owners, the lines between personal and business finances can blur. Many new business owners use their own money to fund their entrepreneurial pursuits. Although it’s easy to mix things together, it is important to keep personal finances separate from your business record keeping. The best way to do this is to set up a separatebusiness bank accountand use the business account to track your business’scash flow. Only record information relevant to your business in your business’s financial records (i.e., don’t include personal transactions).
4. Stay up to date and outsource if you can’t keep up
One of the most common bookkeeping problems small businesses face is falling behind on the books. If neglecting your financial recording goes on for long, it can have serious implications. A few business transactions a day can easily pile up. Trying to work on a huge backlog of transactions can leave a small business owner fatigued and prone to error.
If you struggle to keep up, hire a professional bookkeeper. Unlike business owners who often juggle multiple tasks, bookkeepers focus exclusively on maintaining a business’s records. This helps ensure that your books are up to date.
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Get expert help5. Stay compliant with tax laws
Paying taxes as a new business owner is challenging. Careful bookkeeping can help make sure you pay the correct amount when tax season rolls around.
Many businesses benefit from hiring an accountant trained in dealing with small business tax filings. Accountants are familiar with complex and changing federal and state tax regulations. They can also help find deductions that save money and prevent you from making an incorrect tax payment. As a business owner, you may need to make periodic tax payments throughout the year, so set reminders for tax deadlines so you don’t forget.
6. Manage cash flow
Monitor and track your business’s cash flow, or the money that goes in and out of a business. Business expenses, loan repayments, and dividends paid to shareholders are examples of cash flowing out of a business, while sales, investments, and borrowing represent cash inflows. Businesses that don’t have enough cash coming in are at high risk of failure.
The bookkeeper tracks these figures and may also be in charge of preparing a business’scash flow statement. Good bookkeepers do more than just keep records; they help spot ways to make a business more efficient. For example, they might identify unnecessary business purchases or late-paying customers who hurt profitability.
7. Perform regular financial checkups
It’s essential to conduct regular reviews of your financial records. Quarterly reviews can identify trends, help with plans for growth, and budgeting for the future. Accountants work with bookkeepers to review how financial data are recorded and to ensure accuracy. Accountants also check whether the proper amount of money has been set aside for taxes and if cash flow is being used efficiently.
Small business bookkeeping FAQ
What is bookkeeping and why is it essential for small businesses?
Bookkeeping is the careful recording of a business’s financial transactions, including its sales and expenses. Bookkeeping is essential for small businesses to properly budget, pay taxes, and plan for growth.
What are the different types of bookkeeping systems?
Businesses handle bookkeeping in one of two ways: Manually, by entering records by hand in physical books, or digitally, by using bookkeeping software.
How often should small businesses update their bookkeeping records?
How frequently you update your records depends on the number of transactions in your business. If transactions occur every day, then you should update your records daily.
What are some common mistakes to avoid in bookkeeping for small businesses?
Some of the most common bookkeeping mistakes include entering inaccurate data and failing to maintain records. Finding and fixing errors can be time-consuming and costly. Failure to keep accurate records could lead you to make flawed business decisions since you don’t have a correct view of the true financial health of the business.
How can I stay compliant with tax laws and regulations as a small business owner?
The best way to stay compliant with tax laws and regulations is to be aware of your tax obligations, and then maintain consistent and accurate bookkeeping records so you can pay the correct amount of tax. You may also want to hire an accountant with tax expertise to help you maintain compliance.