If you own and run a business, it makes dollars and sense to know a few of the top bookkeeping best practices for small businesses. Managing and ensuring your books are in order is an important part of running a successful business. Without proper bookkeeping, you may not know how much is coming in and going out of your business.
In addition to other negative outcomes, poor bookkeeping practices will make it much more difficult when tax season hits. Undoubtedly, the best solution is to partner with the experienced professionals at John F. Dennehy CPA. However, if you've decided to do it yourself, here are a few actionable bookkeeping best practices you can use on a daily basis.
Personal and Business Expenses Should Be Separate
If you've just started your own business, it might be tempting to forgo taking the time to separate your personal and business expenses. This can actually be a major setback. You'll never have an accurate record of your business' profits and losses.
Not only should you be keeping track of your business expenses, but the money you use to pay those expenses should come from a separate bank account. It's also a great idea to apply for a separate business credit card to pay for things your business needs. Having these expenses separate can greatly simplify your ability to file your taxes and qualify for all eligible business deductions.
Make a Rainy Day Fund For Your Business
If you have any kind of equipment that is critical for business or you own a building, it's vital to prepare for the unexpected. Equipment and buildings need repair from time to time. However, if you don't have the money or resources to fix the essential item right away, it can set you back or even prevent you from providing business solutions until you get it fixed.
Sure, you can take out a loan, but if you have some money set aside, you can be more strategic about when you take out loans. Another viable solution is to open a line of credit you can use for operating expenses as well as an emergency source of funds.
Do Regular Inventory Audits
Conventional logic says if you didn't sell or use a piece of inventory, then you should still have it. This, however, isn't always true. If you have a retail center, you know customers and employees can steal.
Sometimes products may not get rung up at the counter, which constitutes an honest mistake. Yet, there are other times when a vendor doesn't deliver all of the product. You'll know about these errors much more quickly if you're doing regular inventory audits. You'll also be able to keep the right amount of product in your store, which can alleviate space issues.
Have an End-of-Year Accounting Checklist
Having a year-end accounting checklist and proper closing procedures is critical to the long-term success and growth of your business. The end of the year is important because it will help you prepare for taxes.
It's also the time of year you can better understand how you did that year and what kind of changes you need to make in the coming year to be more profitable. Reconciling accounts, reviewing profit and loss statements, and reviewing any outstanding debt should all be on your list.
Avoid Tax Penalties By Putting Money Aside
When you don't pay your quarterly taxes, you'll be charged a penalty by the government. You'll also have to worry with coming up with more money whenever your taxes are due. While you can delay paying your taxes until the fall, you'll end up paying even more in penalties then. You can avoid these penalties by saving about 30 percent every month and paying your quarterlies. This approach will also help stabilize your finances throughout the year.
Follow Up On Debts Owed to You
You might feel accomplished when all of the invoices have been sent out, but don't be so naive as to think that everyone pays just because you send the bills out. Mail can be shoved in a drawer if you've done work for an individual or business that doesn't take care of their financial matters as well as you do. Make sure you're following up on any bill that hasn't been paid in 30 days.
Contact John F. Dennehy CPA for Bookkeeping Best Practices
Part of doing business is identifying when it makes more sense to hire someone else who specializes in providing a service. In many instances, a professional will be able to do something more quickly because they have the experience to do it efficiently.
And when it comes to small business accounting and bookkeeping best practices, John F. Dennehy CPA offers a range of solutions designed to save you time and money. We offer:
Contact John F. Dennehy CPA today to schedule a consultation.