Bookkeeping is probably the last thing small business owners want to be doing. However, recording financial transactions is essential for a small business’ stability.
“It is vital that businesses have a bookkeeping process in place whether it is through an accountant or on their own. Tracking your financial transactions helps prevent the risk of unexpected cash flow problems and gives small business owners time to focus on the goals of growing their business,” said Jill Shalett with JKS Cloud Solutions, a Washington, DC-based online bookkeeping firm for small businesses.
For small business owners, tracking finances and business transactions may seem difficult, but there are some easy steps to keep the books up to date efficiently. Here are five tips for some bookkeeping best practices.
1. Properly classify employees
You can have different staff classifications, such as employees and contractors, but it is important to identify each staff member properly to maintain the accuracy of your financial books.
2. Keep backups of all financial records
If you have ever seen the Seinfeld episode, “The Sniffing Accountant,” then you know how stressful it can be to track down financial records if the Internal Revenue Service comes to audit you. It is important for your business to keep detailed records of your books, especially in the case that you are audited or need to show financial records.
3. Set up an internal bookkeeping process
While many small business owners hire external services to keep track of their books, it is important to have an internal bookkeeping process to review your records and keep yourself up to date.
4. Review financial records monthly
Small businesses oftentimes have lots of cash going in and out. With transactions adding up, operationalize your finances by conducting monthly reviews.
5. Keep business and personal expenses separate
An entrepreneur has both business and personal expenses every day, but they need to be kept separate. When keeping clean financial records, it is important not to commingle business and personal expenses by having separate banking accounts.
Visa International founder Dee Hock famously said, “Making good judgments when one has complete data, facts, and knowledge is not leadership – it’s bookkeeping.” Putting a consistent bookkeeping process in place will not only sustain small businesses. It will help owners make the most informed decisions on their marketing and growth.