If you own a small business and don’t have a bookkeeper, there are certain steps you should take to stay on top of your small business accounting. They’re important for running your company, managing your cash flow, and succeeding, and they’ll also keep things much simpler when it’s time to file your taxes.
These are fundamental steps, but if you’re new to operating your business, you may not be doing all of them. You’re probably not using a bookkeeper or an accountant because you’re bootstrapping for now, but plan to hire one as soon as you’re able to. It will make your life much easier, and it will help you avoid potentially costly tax filing mistakes and missed opportunities to reduce your tax burden.
Until then, here are some essential ways to say on top of your small business accounting.
Small Business Accounting Tips
- Separate your personal and business finances. We’ve already written about why you need to separate these two areas of your finances, and also about how to separate them. So, take a look at these two posts for more information. This should be your first step for keeping a good handle on your small business accounting.
- Track every expense. Have an organized system for documenting every business expense, and of course remember to keep receipts. This is important for maximizing your small business deductions at tax time, but also for understanding where your money is going.
- Track all your income. Just as you have to keep tabs on the money that’s going out, you have to know exactly how much money is coming in. This includes revenue from sales, but also other incoming funds such as loans and other cash infusions.
- Maintain a detailed picture of labor costs. Labor costs are often the majority of a small business’s overhead. As such a significant expense, it’s crucial that you understand exactly what you’re spending. This doesn’t just include your standard payroll; also track what you spend on overtime, benefits, perks, professional development opportunities, and so on.
- Keep detailed inventory records. If you maintain a stock of products, always know exactly what’s on hand. This gives you a better picture of your spending, helps you eliminate waste, informs promotional decisions, can help you become aware of theft, and more.
- Automate your small business accounting. While you’re not using a bookkeeper or accountant, invest in accounting software. Quickbooks is the most popular option, but do some research to find the product that’s right for you. This will facilitate tracking your income and expenses and other areas of your accounting.
- Stay on top of accounts receivable. Don’t just send invoices and forget about them. Make sure you’re getting paid in a timely manner; sometimes this requires you to be proactive about asking for your money more than once. When you don’t get paid what you’re owed, it can jeopardize positive cash flow and lead to overpaying on your taxes.
- Schedule in your accounting time. It’s easy to let accounting tasks slide when you’re busy since there’s usually no immediate need to tackle them. But that’s how things get out of hand. Keep them under control by scheduling some time every week to tend to the books, file away your receipts, etc.
- Plan for major expenses. Every small business eventually has significant expenses pop up, like needing to upgrade or replace equipment. You should always have a dedicated emergency fund, so make this a part of your accounting.
- Create financial projections and goals. Take the time to analyze and estimate where your company should be financially in the near future (e.g., next year, in three years, and in five years). Set realistic targets to help keep you on track. This can be difficult, given the need to project how your costs and revenue may change; a professional accountant can be a big help with this step.