People who become business owners do so because they have two qualities. A passion for their product or service and a self-motivating desire to be in charge of their own financial goals. Business ownership can be challenging because as a startup you have too many responsibilities in areas that you might have little training or experience. One such area is bookkeeping. I’ll often hear small business owners or startup entrepreneurs say things like “I keep all the financial details in my head”. Wow, that’s not too impressive, at least for someone running an actual company! Last year just before the close of the year my client sent me his paperwork with a note that read “I hope you can make sense of this because I sure can’t!”
I often get the feeling that small business owners think of bookkeepers and accountants as magicians, who can intuitively manage finances and calculate taxes, even with insufficient data. What they fail to see is the burden it creates for everyone involved. To counteract failed attempts at successful business ownership, entrepreneurs, especially those just starting, can begin by implementing a stable system of financial data tracking, along with proper record keeping procedures. Not only will this make them more effective business managers, but it will help keep them out of trouble with the IRS, smooth out seasonal highs and lows, increase profits, help them stick to deadlines, and be better prepared for unpleasant surprises. Here are my 6 bookkeeping tips for entrepreneurs:
1. Reconcile bank accounts regularly.
Balancing and reviewing your chequebook will help guard against over drafting the account and employee theft. Poor record keeping becomes an easy opportunity for unscrupulous employees to commit theft or embezzle your money. Nowadays, with software like QuickBooks, you can directly download your banking transactions daily and reconcile your account in two minutes.
2. Reconcile credit card accounts regularly.
Balancing and reviewing your credit card statements will ensure that you aren’t double billed for expenses on auto pay. Additionally, it will guard against unauthorized use of your credit card. Software like QuickBooks makes credit card reconciliation a real easy task.
3. Track expenses.
Whether you decide to use a manual checklist, an excel spreadsheet, or a bookkeeping and accounting system like QuickBooks or Quicken, you can quickly load all your purchases and perform monthly calculations so you can stay awake and alert to overspending. Sticking to a budget and controlling expenses is impossible if you don’t know precisely how much you’ve spent.
4. Track sales.
Knowing your real-time sales activity will help determine market trends and your own sales efforts. It will also help you identify how your expenditures relate to your sales figures. In other words, you can ask and answer this question: Have the money I’ve spent generated meaningful profits?
5. Regularly prepare and read your financial reports.
Get into the habit of generating monthly financial summaries so you can spot trends, find mistakes and analyze business performance. Reports can reveal surprising, yet concrete information because they are based on real data (that’s if your bookkeeping is done correctly). Businesses that use financial reports as road maps or compasses generally make smarter business decisions.
6. Maintain a separate bank account for sales taxes.
Keeping a bank account explicitly reserved for sales tax collected will enable you to be on target for remitting your payments on time. Late fees and penalties on unpaid sales taxes can amount to thousands.