It’s the start of a new year, and you’re ready to jump right into your resolution to organize your small business files and financials! Attempting to run a business without a plan for efficient bookkeeping and accounting is like trying to drive with your eyes closed. Sooner or later, you’re going to crash.
The most important thing to remember is that business bookkeeping and accounting are ongoing throughout the year. Much of the basic tasks you’ll do daily will help your business function better.
You’ll be more equipped to move your business forward in success if you follow these six tips.
Start using quality accounting software.
Your accounting software is the backbone of your bookkeeping. Good accounting software will help you keep track of income and expenses, generate and pay invoices, and create financial reports.
Accounting software will save you time and effort by allowing you to automate financial management tasks. The software will also help to reduce any errors and improve accuracy.
If you do business on the go, look for an accounting software program to access and update your financial data using any device.
Even if you outsource your bookkeeping needs to a service or virtual assistant, you will still understand the basics of your financial information by choosing user-friendly accounting software. This knowledge will keep you in the know, even if you leave the details to someone you trust to handle the books.
Keep your records organized.
Many businesses operate in a digital world, so you may not require a filing cabinet or folders. But you’ll still need a good record-keeping system and a paper trail just in case something happens to your computer records.
Some of the records you’ll want to have in a filing system include the following:
- Accounting records (payable/receivable)
- Bank statements
- Employee and payroll records
- Contracts, permits, licenses
- Stock, investment, and tax records
You’ll want to use a consistent system for naming and storing your documents. For example, an alphabetical filing system for your accounts payable can help you quickly find your suppliers’ information. With your accounts receivable, keep your sales invoices in numerical order to review what’s outstanding quickly.
There are various schools of thought about how long to keep your financial/business records. Check with your local, state, and IRS to know what applies to your industry.
As a standard rule, always keep your business and personal expenses separate from each other. Have a business and a personal bank account and separate credit cards for business and personal use. Be mindful of how you spend your funds, ensuring that your business account is used only for business-related expenses.
Make a business budget.
Your business will have a better chance of succeeding if you’ve created a budget. Having a budget, and sticking to it, provides your business with a roadmap for managing financial resources, making informed decisions, and staying on track.
Start by determining the financial goals for your business. Then, gather data on your business’s income and expenses from last year to create a baseline and identify trends. Estimate your future business income and list the expenses you expect for the upcoming year.
Once you have this information, you can then create a budget. By allocating your resources wisely to match your goals, you’ll have a better chance of meeting those goals.
Make sure you monitor and adjust your budget throughout the year. Especially in uncertain economic times, you’ll need to regularly review your budget and make adjustments as needed to make any course corrections.
Monitor your cash flow
Just like understanding your accounting software, knowing how the cash flows through your business will help you manage it well. Bookkeeping can help you with this by producing a cash flow statement. This statement will give you a broad understanding of how cash moves inside and outside your business.
Weekly and monthly cash flow statements will help you to:
- anticipate expenses
- appropriately allocate income
- build your financial trajectories
Monitoring your cash flow will also help you to identify any potential cash shortages so you can take corrective action. Or, if you are generating more cash than you are using (Whoo-hoo!), you can decide to invest it or pay down business debt.
Don’t ever let your business get ahead of the financial side of your business. Accounting, accounting, accounting. Know your numbers. – Tilman J. Fertitta
Keep track of your expenses.
Make sure you keep all of your receipts–all of them. Keeping receipts from purchases will help prevent many taxes, accounting, and cash flow problems.
If you don’t like having a bunch of paper in a box to sort through at tax time, take a picture of your receipts and keep them in a digital folder. Many accounting software programs allow you to upload receipts directly, and the program categorizes them for you.
Have you ever asked yourself, “What counts as a business expense?” Business expenses will generally fall into one of these categories:
- Travel expenses
- Office/home office expenses
- Wages/employee salaries
- Raw materials or production inventory
There are many more, so keeping up with your expense reports can make all the difference, especially at tax time.
Hire a professional virtual accountant.
Keeping up with the files, regulations, and details of the bookkeeping and accounting process is a full-time job. Are you struggling to keep up with your small business books? If so, consider using professional virtual accounting services. Once you’ve developed your business plan, a professional virtual accountant can help your financial plan work.
Even with the best accounting software, the right filing system, and a responsible budget, it is still time and effort-consuming to keep up with all the bookkeeping needs. Consider these items a virtual accountant can take off your plate:
- Recording and categorizing daily expenses
- Sending out customer invoices and recording payments
- Getting the books ready for your tax accountant
- Assisting your tax accountant at tax time
- Reconciling monthly bank statements
- Generating monthly/quarterly financial statements
- Processing your payroll
If one of your New Year’s resolutions is getting organized, these six tips can help you. Creating efficient processes and outsourcing your bookkeeping and accounting needs can support the growth of your business.
Reach out to Victory Virtual, and let us connect you with our U.S.-based professional Virtual Accounting Services so you can begin this year the best way!