Good bookkeeping practices for small businesses are the backbone of your financial plans. They’re essential to qualify for loans, to file your taxes, and to appeal to new investors. It’s not enough to just have some data haphazardly noted down. There are processes that help optimize your books. Here are some suggestions for the best bookkeeping practices for small businesses.
What is Bookkeeping?
First let’s get into what bookkeeping is. Bookkeeping is the creation and maintenance of an organization’s financial records. That can include purchase, revenue, and more. Bookkeepers record this in either a ledger or a sub-ledger.
Bookkeeping involves:
- Recording a company’s financial transactions
- Archiving and securely storing financial documentation
If you follow bookkeeping best practices, business owners and shareholders can use that data to make important decisions regarding the company.
Single Entry Versus Double Entry Bookkeeping
To create that data, there are some fundamental things you should know. Like there are different types of bookkeeping. When a company is in its nascent stage and has a low volume of activity, they’ll find single entry bookkeeping suitable for them. Here, there is a two-column ledger kept, with one for revenue and the other for expenses.
For double entry bookkeeping, there are two columns with each transaction located in two accounts. You enter a debit in one account and a credit in another account for every transaction. This method ensures accuracy.
Basic Types of Bookkeeping You Should Know
- Cash Based Bookkeeping – Transactions are recorded when cash is received or paid.
- Accrual Based Bookkeeping – Transactions are recorded when they occur, regardless of when money is exchanged.
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10 Best Bookkeeping Practices for Small Business
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Carefully Choose Bookkeeping and Accounting Systems
- Manual bookkeeping is done by hand. It’s comparatively inexpensive. It requires time and manpower. Manually keeping your books is prone to human error.
- Virtual bookkeeping is done on a computer with software. It requires purchasing the software and you’ll require a person to use it. After a learning curve, it saves you a lot of time.
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Do Everything in a Timely Manner
Speaking of time, don’t leave everything to the last minute. Stay updated with all the important deadlines. Doing your bookkeeping early is one of the best bookkeeping practices. That way you won’t be in a rush to find data or file paperwork when you need it.
Whether it’s procrastination or a landslide of work to do, you must figure out how to do your bookkeeping quickly. One such way is to outsource the work to bookkeeping experts, like us at IBN Technologies.
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Keep Separate Personal and Business Accounts
One of the best bookkeeping practices for a small business is to ensure that neither you nor your employees are purchasing things for personal use with the business’ funds. Allocating funds in the wrong places will cause cash flow issues. You’ll also have issues with tax filing and auditing.
That’s why you should keep separate bank accounts and credit cards for your business. This will keep your spending in check, and you won’t have any confusion regarding your personal expenditure and those of your business.
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Have Accounts Payable and Accounts Receivable
Bookkeepers log information into two accounts to keep track of the business’s debits and credits.
- Accounts Payable – AP tracks all the money the business owes in the short run, such as utility bills and supplier payments.
- Accounts Receivable – This is for all the money owed to the business for goods sold or services provided.
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Create Internal Controls
Ensure that there are levels of accountability within your financial process. For example, the person who opens the mail should be different from the one performing the accounting functions. This will ensure that there are different people in charge of different processes.
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Use Accounting Software to Track Expenses
Also keep an updated record of your business expenses. That means saving receipts daily, or at least on a weekly basis. Software that has been made to do this would be the best choice.
QuickBooks, Xero, NetSuite and other cloud-based expense technologies will help you with daily bookkeeping tasks. They’ll be especially helpful as your business grows, and there is a much larger volume of transactions to record. You might even need to hire online bookkeeping services to help you.
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Monitor Everything
One of the best bookkeeping practices for small business is to keep a check on every process, whether it’s employee time, or your cash flow. Keep records of your receipts, these would be essential if you’re audited.
It helps to keep all your information in a tidy manner so that you know exactly what you’re looking for without wasting your time.
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Follow GAAP
On to something a little more technical – publicly traded companies in the US are legally required to use GAAP, or Generally Accepted Accounting Principles. This helps to standardize accounting and bookkeeping.
Similarly, there are International Financial Reporting Standards. These provide guiding principles for accountants internationally. That’s important for those looking to work on an international level.
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Optimize Your Chart of Accounts
Common bookkeeping practices include using your chart of accounts as the basis for a management accounting tool. It can also help you monitor your customer acquisition cost, your break-even point, and your ROI for expenses. You can also track your cost to acquire a customer, your general costs, and even the costs you can cut down on during a downturn.
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Maintain The Three Major Financial Reports
- Income Statement – To show the business’ streams of revenue, expenses and profit over a period.
- Balance Sheet – Consider this a look into the company’s assets and liabilities.
- Cash Flow Statement – This displays the cash coming in and out.
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How IBN Technologies Can Help You
Following the best bookkeeping practices is essential to the long-term financial success of your small business. Though the rules are simple, keeping close records, remaining aware of regulations, and using the proper tools takes time.
At IBN Technologies, we appreciate the needs of small business owners. Our staff of more than 120 experienced bookkeepers will improve your bookkeeping process. They will use their expertise to choose the best systems for you, make you compliant, optimize your processes, and create a layer of accountability. They will also monitor everything, freeing up your time so that you can focus on growing your business.
Reach out to us today for professional bookkeeping services tailor made for your small business.
