Bookkeeping is the backbone of every successful business, providing entrepreneurs with vital financial insights which serve to inform key business decisions and maintain regulatory compliance. From deciding whether you have the cash flows to make your next big investment to weathering economic fluctuations and thriving in the long run, a well-established bookkeeping system will allow you to take a data-based and analytical approach to your operations. The daily responsibilities of bookkeeping can often distract entrepreneurs from expanding their business and pursuing their long-term goals. Access to a bookkeeper or bookkeeping service will take care of the details and have the information needed readily available. It is important to remember a few fundamentals right from the beginning.
1. It is 2023: Embrace Technology!
- Worried about keeping your books being detailed and organized? QuickBooks Online (QBO) is a modern solution that keeps your financial information accurate and in sync! Are you planning to use software for workflows, such as inventory tracking, bill payments, or payroll? Many of these applications already exist within QBO and several third-party services now connect to QuickBooks. This integration streamlines the data processing into your books. Not only will you save time, but you will also avoid mistakes commonly made by recording financial information manually. Not only does software help with your accounting, but it also arranges your data so you can view or export specific items easily. For example, you can check transaction details for Accounts Receivable or even specific customers and vendors. Do you collect sales tax? The tax center organizes your taxes payable by tax entity. You can also take advantage of features like Pay Down Credit Card and automated bank feeds! It is ultimately easier to manage your finances and prevent common mistakes.
2. Set a Budget and Stick to It!
- One of the most important items you will need for keeping your business on track is your annual budget. Bookkeeping software allows you to create a Chart of Accounts that mirrors your budget, with the option to import your pre-existing budget as well. By importing your budget, you will be able to monitor your actual revenues and expenses compared to the budgeted ones throughout the year! This way, you can know if you’re meeting or exceeding your goals in a timely manner, particularly if you will need to course correct. You can customize this to be as detailed as you need it to be! Perhaps you’d like to see automobile expenses grouped under an umbrella category, or you could also choose to create subcategories within the Auto category to keep track of specific expenses such as fuel or repairs & maintenance. For your income, you can also choose to create classes if you need to track your income and expenses on a project specific basis. Crafting a well-planned budget and chart of accounts is essential and will help you interpret important performance metrics and create financial statements effectively. This approach will save you time and enhance the professional quality of your work.
3. Regular Reconciliation & Financial Report Review
- You should prioritize two workflows every month or quarter: reconciling your bank and credit card statements and reviewing your financial reports These are crucial tasks for maintaining financial accuracy and ensuring you are on track with your goals. Your reconciliations will ensure that what you’ve posted to your books matches the source information of your bank or credit card statements. Not only that, but it can help you save money by catching unknown charges (e.g., bank fees, taxes, or miscellaneous charges) while you can still do something about it. If you reconcile your accounts monthly or quarterly, you can catch mistakes early and keep your financials accurate and current. This will save you time and prevent errors from accumulating at the end of the year.
- Regarding reviewing your financial statements, it is common practice to do so monthly as well as it can bring your attention to areas of concern. Perhaps there are accounts payable that have gone unpaid and need your immediate attention to avoid late fees. You may also have aged receivables negatively impacting your cash flow and, as they get older, will be significantly harder to collect on. Similar to reconciling, you will also be able to verify that transactions posted to your books were in fact initiated by your business. Organizing all this information will assist you in making prompt operating decisions. For instance, you can take on a new loan to enhance immediate cash flow only if you have assets to support the new liability. Additionally, you can ensure that your company has sufficient liquidity to cover all current liabilities. By delaying these reviews, you may miss the chance to address any problems while you still can.
4. Sales Tax Compliance
- If your operations involve collecting sales tax, knowing how much you owe and to what tax entity can be challenging to keep track of. QBO and other software solutions offer built-in tax centers to help you stay on top of your sales tax liability. With these features, you can easily keep track of your taxes and maintain accurate records. This tool helps monitor your outstanding balance to state and local tax authorities, due dates, and payment status. Further, if your business operates in more than one state or area, software is crucial to ensuring that the correct tax rates have been applied depending on the state’s tax regulations. This way, you will always comply with regulations without having to worry about manually tracking your tax liability!
5. Separate Personal and Business Finances
- One of the cardinal rules of bookkeeping is to maintain a clear distinction between personal and business finances. Establishing a separate business bank account and credit card is crucial to avoid mixing personal and business expenses. By doing this, you can keep accurate track of your business’ cash flow and tax liability. Moreover, you can reduce your bookkeeping expenses by not having to question as many transactions. Beyond this, creating a separate business account can also give you access to business-only services from your bank or credit card provider. Your brand’s reputation can improve by simply adding your business name to your bank information.
Sound bookkeeping practices are the foundation of any successfully business venture. Entrepreneurs who have a solid understanding of these core principles can confidently make financial decisions based on date, keep their cash flow in good shape, and ensure compliance with tax regulations. Remember, a well-organized financial record is not just a legal requirement; it is an invaluable tool for strategic planning and sustainable growth. Entrepreneurs can pave the way for sustainable and scalable success in any economic climate, be it prosperous or challenging, by following these fundamental principals of bookkeeping.