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1. Plan for major expenses.
The last thing you need is for your business to be running well and to hit some major and unexpected expense that cripples your finances or bankrupts you. Good health insurance, holiday shopping, a new car, quarterly taxes, a wedding across the country, etc.. Set up a savings account and figure out the ideal amount of money that can cover expected large expenses, unexpected large expenses and enough that could get you through a rough patch if your business slows down. 5 months worth of normal living expenses should be good enough to give you peace of mind and avoid debt or bankruptcy.
2. Use the right accounting system.
Most businesses use either cash based or accrual based accounting. In general most businesses should use the accrual method. If you use the cash method, you count income when you receive it and expenses when you pay them. Under the accrual method, you count income and expenses when they happen, not when you actually receive or pay them. This difference in timing is relevant if your company keeps inventory on hand or handles transactions on credit. In these cases, the accrual method might be a better choice for your business. In other cases the simple cash based accounting could be all you need.
3. Choose the right software.
Trying to keep your company’s finances straight without the appropriate tools can quickly become frustrating. Accounting software programs like QuickBooks help small-business owners save time, reduce errors, and provide a backup of data. QuickBooks also enables you to log transactions, invoice customers, and create custom reports with ease.
4. Track everything.
Income and expenses aren't the only areas that impact a business' bottom line. Other areas to monitor are accounts receivable--who owes the business money, loans, petty cash and taxes, as well as sales tax and estimated tax. Keep a small notebook in the car or use a mileage tracking application on your smartphone to track auto expenses. Keep another notebook or application for tracking petty cash withdrawals.
5. Allocate time each week for your books.
It is very important to be on top of this. Regular reviews will let you know how your business is going and allow you to control your cash flow. If you get too far behind on this it can quickly become overwhelming. Shameless plug alert - instead of worrying about it and devoting lots of time to your books every week visit our contact us page and we'll do it for you.
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