10 Bookkeeping Tips for Small Businesses

Keeping up with accounting tasks can be demanding for any company or organization, but it is especially overwhelming when you run a small business and handle the bookkeeping yourself!

To prevent things from getting out of hand, it’s smart to implement a foolproof system that makes sense for your company’s size, revenue, and industry, while also accommodating your busy schedule. You want to use a simple, effective process that allows you to track and record all finances related to your business quickly and easily. This way, all your expenses, invoices, deposits, and other financial information will be neatly stored and accounted for once tax season arrives in the spring.

Here are ten great bookkeeping tips to get you started on the path to bookkeeping bliss for your small business.

1. Separate Business and Personal Finances

It is essential to keep your personal finances separate from your business. Comingling accounts and expenses – even by accident, like using the wrong credit card – makes more work for you or your accountant to organize and can send up red flags to auditors.

Mixing business and personal finances also makes it much more difficult to assess how your company is doing financially, because cash flow is obscured by non-business expenses.

More than just a bookkeeping tip, maintaining separation between personal and business finances is practically a rule for small businesses to succeed.

2. Engage in Disaster and Data Recovery Planning

This tip should be applied to all your business data. If you can’t afford to lose it, make a plan for keeping it safe!

For many businesses, data is their most valuable asset. Making sure that your financial records are backed up in the event of a natural disaster or cyberattack are key to keeping your business running smoothly. If you lose your records, you might not be able to take advantage of some important tax deductions.

To keep essential data safe, follow the 3-2-1 Rule: three copies of the data, located on two different types of storage, with at least one copy offsite.

3. Use Cloud-Based Accounting Software

Speaking of offsite storage, using a cloud-based accounting software not only gives you offsite data storage, it also allows you to access your bookkeeping data anytime, anywhere, from any device with an internet connection.

Accounting apps save you time and money by automating financial management, organization, and reports. Instead of carrying around that receipt until the ink wears off, snap a photo with your phone and upload it to the app!

4. Go Paperless

Modern accounting software has revolutionized small business bookkeeping. Most platforms provide everything you need to manage your company’s accounting – including digital organization of bookkeeping documents.

These platforms have built-in templates that allow you to easily input and track basic items, such as invoices, deposits, and check printing. By keeping your files digital, not only do you save a few trees, you also reduce the risk of physical copies being ruined by flood or fire.

5. Avoid Cash

Accounting software can automatically track a lot of things for you, but not cash. If you’re hoping to write off significant expenses during tax season, cash makes it even harder to do so since there’s often little to no record of these purchases.

However, by using credit or debit cards, you can track exactly how much you spend, as well as when, where, and for what reason. Electronic payments help create an audit trail for you to reference should you ever need to substantiate any tax write-offs.

RELATED: Resolving Tax Debt for Small Businesses

6. Maintain Accurate Employee Classifications

If you have both employees and contractors on your payroll, it’s important to make sure that they have been correctly classified. The IRS imposes heavy penalties for misclassification, even if it was done by mistake. Remember, it’s much easier to do it right the first time than to try to correct it with the IRS later!

7. Save for Taxes

The IRS also has a vested interest in making sure you’re meeting your tax obligations. If you fail to put aside an adequate amount for your year-end taxes, you could be in for a nightmare when tax season rolls around in the spring.

The good news is that if you oversee your own business financials, you have control over how much money you are saving for tax season.

Reviewing your returns from the previous three to five years can provide at least a baseline for how much you should be setting aside each month. If you don’t have that much business history to draw on, it’s better to save too much than to risk an IRS penalty for tax debt.

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8. Prepare for Major Expenses

If you fail to plan for major expenses, you will almost certainly find yourself regretting it at some point. This is especially true if you work in a highly competitive industry and are unable to take advantage of a golden opportunity simply because you do not have enough capital set aside.

However, saving requires a conservative approach to handling your day-to-day business needs. Be sure to save in minor increments over a scheduled period so you can continue to execute your daily operations at a high level; meanwhile, stash away a healthy rainy-day fund for future expenses like updated machinery or an upgrade to your company’s computer systems.

9. Review Your Finances Regularly

When it comes to bookkeeping tips for a small business, this one is critical. The best way to keep up with your bookkeeping is to keep a regular schedule for reviewing your company’s financials. Twice each month, schedule roughly one to two hours to go over your company’s deposits, withdrawals, transfers, purchases, and other key items.

Investing this time to review also gives you a good opportunity to check your accounts receivable to ensure your clients are paying their bills regularly and on time. If you notice any discrepancies or failure to pay, you can apply some gentle pressure so your books will be current come tax season.

Of course, you wear a lot of hats as a business owner, and you may not have time to take a deep dive into your bookkeeping on a regular basis. If that’s the case, it could be wise to outsource this essential task to an expert.

10. Hire Bookkeeping Services

If you’re struggling to keep up with your accounting, or you aren’t catching small errors until they’ve snowballed into big problems, then it’s time to consider hiring a professional.

When you take this approach, be sure to use your bookkeeping service on a monthly or quarterly basis rather than waiting until the end of the year. This way, you can correct mistakes before they start costing you serious money. Also, you’ll likely get cheaper rates since many services are looking to maintain consistent income during their off-season.

Contact S.H. Block for Help With All Your Company’s Financial Needs

If you’ve already tried these bookkeeping tips for small business and still feel that you’re in over your head with your company’s financials, remember that you can always reach out to us. We can help by reviewing your current accounting processes, diagnosing your primary issues, and then developing and implementing a plan of action to improve your bookkeeping strategies and deliver transformative results.

RELATED: S.H. Block Bookkeeping Services

Whenever you want affordable rates and quality representation for any tax problems (either for your business or your personal needs), we are here for you. By choosing S.H. Block, you hire a team of legal and financial professionals who also have a wealth of experience in assisting small business owners with their bookkeeping needs.

Our bookkeeping services can be as comprehensive  or as minimal as you need, and our experience with tax law goes a long way to ensuring your finances are in compliance with the latest IRS rules and regulations. Additionally, we have convenient office locations in Columbia, Annapolis, and Baltimore to better serve you.

If you are eager to schedule an appointment to discuss your small business’s tax and accounting needs, please feel free to contact us by completing this brief form or calling (410) 872-8376.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject. Please read our full disclaimer here.

References

Lesonsky, R. (2019, June 12). 10 Tips for Better Small Business Bookkeeping. Score.org. Retrieved from https://www.score.org/blog/10-tips-better-small-business-bookkeeping

Yoder, T. (2021, October 1). Top 10 Bookkeeping and Accounting Tips for Small Business Owners. Fitsmallbusiness.com. Retrieved from https://fitsmallbusiness.com/bookkeeping-tips/