82 percent of businesses fail due to poor cash flow management. That’s an alarming statistic for any entrepreneur with a business or planning to open one.
But why is cash flow mismanagement so common? The main reason is that many entrepreneurs who opt to do their own business bookkeeping and accounting, don’t have the necessary skills for doing so. 60 percent of small business owners admit they aren’t very knowledgeable about finance and accounting.
Thankfully, small business bookkeeping isn’t a convoluted concept understandable only by experts. With the simple bookkeeping tips we share in this article, managing your business finances should become easier.
1. Separate Your Personal and Business Banking
One of the top mistakes beginner entrepreneurs make is using their personal account for business banking. That mixes business funds with personal funds, complicating bookkeeping. Imagine trying to process personal expense transactions within the bookkeeping of your company.
What you need to do is open a bank account for your business the moment you decide to start a business. This account keeps your business money separate from your personal funds.
In case you need business funds to pay for personal expenses, consider doing a bulk transfer from your business account to your personal account. You can do that on a weekly or monthly basis. This simplifies your bookkeeping, as you don’t have to deal with numerous personal transactions done frequently.
2. Invest in Bookkeeping Software
One of the best ways to simplify bookkeeping is by using the right software. Currently, 82 percent of small businesses invest in some form of accounting software, whether on-premise or cloud-hosted.
So, what type of bookkeeping software should you get? That depends on your exact needs.
Generally, accounting and bookkeeping software provide different levels of service, depending on the specific software you purchase.
Some software options provide Cashbook alone, while others offer both Ledger and Cashbook. You can also get software that offers Ledger, Cashbook, and Inventory. At the highest level is software for Ledger, Cashbook, Inventory, Foreign Currency Transactions, and Point of Sale.
Where you’re running a business that’s expanding, it’s best to get bookkeeping software that offers as many relevant features as possible.
3. Organize Business Documentation
Make it a priority to keep documentation for every business transaction. These accounting source documents enable easy tracking in case queries pop up in the future. Moreover, such documents serve as proof to the taxman or auditor of what happened.
Many tax departments will require you to keep documentation that backs up your tax claims for five or more years. The documents include wage records, receipts, invoices, and so on.
The best way to preserve records well is to create an organized filing system. Choose among a paper system, an electronic system on a hard drive, and an online documentation system. With the world becoming increasingly digitized, online document storage is more advantageous than the other two.
4. Track Cash Payments
Every time you receive cash, be sure to pay it into your business bank account before you spend it. The money may also go to petty cash if necessary.
If you use the cash before it goes to the right place, you risk messing up your bookkeeping system. For instance, you may end up forgetting which client paid you the money. Calling the customer for payment later only embarrasses your business.
Not declaring cash payments from clients may also appear fishy to tax officials. It looks like you’re trying to evade taxes, and the consequences could be undesirable.
5. Stay on Top of Monthly Bookkeeping Reports
Another actionable tip on bookkeeping is to educate yourself on bookkeeping reports. Many entrepreneurs have no idea whether the bookkeeping strategies they’re applying are working. They wait until it’s too late, and they’re deep in debt.
The best way to steer clear of this scenario is to keep your bookkeeping system updated at all times. Every month, generate, read, and understand your income statement and balance sheet, among other reports.
6. Consider Outsourcing Your Bookkeeping
As your business starts to grow, it may become difficult for you to handle administrative duties and bookkeeping simultaneously. Outsourcing your bookkeeping may be the best way to go about this situation. You may also outsource when not confident of your bookkeeping skills, even if your business is just starting.
Outsourcing has numerous benefits. For instance, it’s a lot more cost-effective than hiring a full-time bookkeeper or accountant. An outsourced bookkeeper only works a few hours per month and will charge you for just that.
Another benefit of outsourcing your bookkeeping is that you’re guaranteed accuracy. You’ll be working with an experienced professional who possesses the skills necessary to work on your accounts. All they need is a couple of hours to process all bank transactions conducted within the month, finalize bank reconciliation statements, and generate the necessary reports.
You can choose to outsource only a portion of bookkeeping tasks or let the outsourced service take care of everything.
The best professional bookkeepers also provide valuable business insight into how to stay on top of your day-to-day accounting and bookkeeping. For instance, they may recommend new accounting software that fits your business perfectly. They may also provide bookkeeping training to your office staff.
Master Practical Bookkeeping Tips to Grow Your Business
Bookkeeping isn’t the most exciting topic for business owners, but you can’t avoid it. The truth is, bookkeeping doesn’t have to be complicated. With the bookkeeping tips we’ve shared in this article, you can start to track and manage your business transactions more easily.
Would you like to learn more about bookkeeping for businesses? Please keep visiting our blog.
