Small business owners know that smart money management is one of the most important aspects of success, no matter how much revenue a business brings in. How you keep your books can improve or destroy your business because these records are the only true representation of your profits and losses.
Establishing a unified accounting practice can feel daunting, especially if this is your first rodeo. But it doesn’t have to be difficult or painful, especially if you build healthy habits into your routine from the start.
As you determine the financial side of your business, here are five best practices to keep in mind when creating a functional accounting system.
1. Consider hiring a professional
If you are feeling stressed about your own book, don’t worry: you don’t have to keep your own accounts if you don’t want to. In fact, Ed Hattrup, owner of financial advisory firm Bald Ginger, urges small business owners to outsource their bookkeeping “as soon as they become a real business.”
“It’s something you have to take off your plate and make sure you do it right,” says Hattrup. “At best, business owners do the job at the expense of their time and energy. In the worst case, they can’t even tell how much they make each month and their books are a disaster. “
Instead, Hattrup encourages its customers to focus on the creative and strategic aspects of their business and leave the tedious work to trained professionals. “Focus on being good at what you’re doing,” he says. “There is a better return on your business than doing bookkeeping.”
However, Dori Eversmann, owner of the accounting practice Chastain Partners, believes that small business founders are fully capable of managing their own books, especially when cost is an issue in the beginning.
“Founders are usually smart and [handling my own bookkeeping] I would do it too, ”she says. Eversmann encourages business owners to follow the IRS guidelines for tracking transactions and keeping all receipts for seven years.
When is it time to hire someone?
If you decide to outsource your accounting, Eversmann and Hattrup have suggestions as to which characteristics you should look out for in a person or company.
“Find someone you get on well with and who will work with you on your long-term goals, rather than just paying your taxes,” says Hattrup.
Eversmann encourages owners to look for the following qualities in an accountant:
Goes well with personality and values as you will be spending a lot of time with this person.
Responsiveness in case you need to resolve an urgent question at the last minute.
Someone who communicates well with your suppliers, employees and customers.
2. Separate your personal and business expenses
Separating your finances should be one of the very first steps you take after starting your business. It can be tempting to save this task for later, especially when you have a million other things on your to-do list, but keeping your personal and business transactions going gives you several benefits, including:
Avoid blurring the lines of spending that an IRS audit could trigger.
Limiting your personal liability in the event that your company is sued.
Make it easy to track your business expenses for accounting purposes.
Hattrup encourages all of its customers to look into small details from day one in order to get started on the right foot, such as: Business credit card.
Open in addition Business accounts allows you to build and develop business loans that are similar but separate from your personal credit history and score. Your business credit score can reach you lower rates for your insurance and increase your credit potential.
The business loan is particularly useful when you have major expenses or investments and you can apply for a line of credit as alternative seek a traditional business loan. You can even Earn some bonus perks on certain new accounts.
Finally, Eversmann recommends setting up an e-mail address that is exclusive to accounting as soon as you start operations. “In this way you don’t overload your personal inbox, but you can set up reminders for every transaction, for example.”
Nerdy tip: Many business checking accounts and credit cards offer sign-up bonuses for opening new accounts that meet certain requirements. The value of these bonuses can in some cases exceed $ 1,000, and some rewards can even be used on personal travel.
3. Track your income and expenses
As a small business owner, individual transactions are important – but so are your general financial trends. By tracking and categorizing your expenses and sources of income, you and your financial advisor can identify different strengths or areas of growth based on historical data. It’s a good idea to sit down from time to time and look at these trends from a high-level perspective.
Robust accounting software programs can be extremely helpful in this regard as they are specifically designed to help you keep track of both one-time and recurring expenses. However, many small business owners use simple spreadsheets like Excel or even rely on a pen-and-paper ledger. Establish a process that works well for you and stick with it.
You might also find Invoicing and Payroll Software is beneficial for several reasons, including logging your inbound and outbound transactions. These tools can also automate your recurring profits and costs, effectively freeing up more time.
4. Schedule regular bookkeeping times
With everything you juggle as a small business owner, it’s tempting to keep moving your books around. After all, you are in business because of your knowledge of your field, not because you enjoy accounting (unless you provide financial services).
But the best way to keep up with your accounts is to schedule consistent times for balancing. A simple practice is to reserve a block of time whenever your credit card statement is due and search through that month’s transactions to make sure they are correct. This should normally take an hour or two and will make your life easier in the tax season.
Eversmann claims that a company is ready for an accountant when there is enough bookkeeping to coordinate to hate the process. She suggests tracking the time it takes to evaluate your books each month to see what your tolerance is.
“A lot of people put that breakpoint at three hours [of] work ”, says Eversmann.
5. Set a budget for major expenses and financial goals
You can be well equipped in everyday life. But what if you have to pay a down payment for an office or buy new equipment and software to build your business? Planning for major expenses can help you get the most out of the business credit and resources you have available while giving you peace of mind.
Likewise, with an accurate representation of your current accounting, you can forecast realistic financial goals that your company will achieve in the next quarter or year.
Develop an accounting system that suits you
Ultimately, all of these suggestions are just that: guidelines and best practices to simplify accounting so you can focus on growing your business. If any of these steps don’t work for you, adjust or ignore them altogether and find a process that suits you and your team. After all, the best system is the one that you stick to for the long term.