Are you one of those business owners who hate looking at their bank statements? If you’re in business to make money, why wouldn’t you want to look at your numbers? Have no fear: you’re not alone. Money is a huge stressor for business owners, in part because they get confused over the bookkeeping aspect of the business. However, the only true way to plan your business and to earn your wealth is to know and understand your financial statements. Avoiding your bank statements will not make your financial problems disappear.
Tip #1: Choose a Bookkeeping System
You have a choice of handwritten ledgers, computer software, or hiring a bookkeeper. Unless you have a degree in Accounting, handwritten ledgers can become confusing and difficult to update if you fall behind, so I would recommend researching the multitude of bookkeeping software titles available. If you want to hire someone, take your time to plan an interview process and check references, even if you hire a local firm who will assign someone to handle your records.
Tip #2: Do Your Bookkeeping on a Regular Basis
If you’re not ready to hire a bookkeeper, choose one day a week or twice a month to log your receipts. For those with online businesses, your expenses will be nominal; those with physical locations will have much more overhead, which makes regular, accurate bookkeeping even more important. Don’t wait until two months before the tax deadline to take out a shoebox of receipts and start entering them. Also, reconcile your bookkeeping records with your bank statements on a monthly basis. Keeping a regular bookkeeping schedule also diminishes the chances of duplicate entries, or entries being logged into multiple or wrong accounts. All this wreaks havoc at tax time to so do it right from the start.
Tip #3: Know the Jargon
Whether you’re using software or a real-life bookkeeper, knowing what the different accounting jargon means will further your understanding of how profitably your business is running. Know the difference between Accounts Receivable and Accounts Payable. Keep accurate inventory counts of your physical products (very often this is the only way to know if you’re a victim of theft). Knowing the difference between Employee and Independent Contractor means a world of difference when it comes to calculating Payroll Taxes.
Tip #4: Make Detailed Notes
For every transaction that is entered into your books, add a detailed note. No more guessing games at tax time. Enter the reason for the expense, person or company, etc. Also, avoid using acronyms in the notes. While it makes sense to you now, it may look like a foreign language in the future, or to a new bookkeeper or employee.
Tip #5: Keep Personal Expenses and Business Accounts Separate
This may seem like common sense but I can’t say it enough. If you use PayPal for your business payments, do not pay personal expenses with that same account. The same is true if you have a business checking account at your local bank. Don’t use that account to pay your gas bill.
Knowledge is Power
The more you know about your company’s financials, the more power you have to fix any problems and to steer the ship toward more earnings. Your business was built to be profitable. Embrace the bookkeeping practice so you can better understand your profit margin and run your company more smoothly.