Keeping up with accounting tasks can be challenging for any company or organization. But it is challenging to run a small business and do your bookkeeping! To keep things under control it’s a good idea to keep things under control in a foolproof system that works for your company’s size, revenue, and industry while accommodating your hectic schedule.
Furthermore, you want to use a simple, effective process that allows you to quickly and easily track and record all financial aspects of your business. This way, your expenses, invoices, deposits, and other financial information will be neatly stored and accounted for during tax season. So, this article discusses the 10 great bookkeeping tips to get you started on the path to bookkeeping bliss for your businesses.
First, we will understand what bookkeeping is:
What is Bookkeeping?
Bookkeeping is the procedure of recording and organizing all business transactions that occur during a business. Bookkeeping is a crucial part of accounting that focuses on recording the day-to-day financial transactions of the company. All financial transactions, such as sales revenue, tax payments, interest earned, payroll and other operational costs, loans, investments, and so on, are documented in books of accounts.
The accuracy of the accounting process followed by the business is determined by how the bookkeeping is managed. Thus, bookkeeping ensures that financial transactions are recorded in an up-to-date and, more importantly, accurate manner. The following are the benefits of bookkeeping:
- Bookkeeping aids in the tracking of receipts and payments. Sales, purchases, and a record of all other business transactions.
- It is beneficial to summarize the income, expenditure, and other ledger records regularly.
- It provides data for financial reports, which tell us specific information about the business. Such as how much income the company has made or the amount the company is worth at a given point in time.
In addition, a bookkeeping service offers a three-tiered approach to developing and maintaining your company’s overall financial processes and management.
As we have seen the overview of bookkeeping, we will next understand bookkeeping tips.
The 10 Important Bookkeeping Tips Businesses Should Know
As a business owner, you are liable to track your company’s books. Your company will be successful if its accounting records are up-to-date and accurate. However, if you fail to focus on your accounting tasks, your business will sink before it can grow. Use the following 10 bookkeeping tips to ensure your books are accurate from when your company is born.
1. Separate Your Personal and Business Accounts
Mixing your personal and business funds may be a small deal. However, every business should have a separate business bank account from any personal bank account. In addition, a different business bank account is often required depending on your business structure. This separate account will save you time, effort, and headaches by making it easier for you and your bookkeeper to sort through the purchases and sales relevant to your business.
2. Automate Your Accounting with Cloud-based Accounting Software
We are glad to live in a time where cloud-based accounting software allows you, as a business owner, to access your financial information whenever needed. Technology will enable us to sort through piles of paperwork, check spreadsheets, and perform manual calculations every month. The central part of the hard work is now done for you by cloud-based software.
Accounting software can send invoices to customers automatically on the due date, track your incoming and outgoing expenses, and generate cash flow reports. There are numerous software options available. Of course, the best option for you will be the one that makes your life easier, and if you’re unclear, you can always consult a bookkeeping expert for clear guidance.
3. Make An Easy-to-Use Record-Keeping System
Every company transaction should be recorded and organized to allow you to easily maintain and manage your cash flow. In addition, keeping track of all business records, including invoices, receipts, and expenses, will assist you in forecasting future opportunities for your company and maintaining tax compliance during an audit. While it is simple to digitize paper receipts if you prefer to keep paper records, keep them in a locked and secure cabinet and organize them into a simple system.
It’s also good to back up your records if something goes missing. On the other hand, most cloud-based bookkeeping software can store these documents by scanning receipts with your phone or forwarding electronic bills directly to your online bookkeeping system for reconciliation and record storage.
4. Understand the Fundamentals
Many business owners believe that if their books are managed by a professional, they do not need to learn about tax and accounting rules. You may even feel that way if you use automated accounting software. However, while these assets reduce your risk of having tax problems, it is best to be aware of your tax obligations. Go online and learn everything you can about your business type.
Remember that registered companies have different rules than sole proprietors and partnerships. For example, consider whether you pay corporation tax, GST registration, and other regular fees. Knowing the fundamentals of taxation could save you from some severe penalties.
5. Set Important Deadlines Reminders
As a business owner, you spend most of your time juggling one challenge after another. With so many responsibilities, it’s easy to lose track of when to pay GST, payroll, and regular business invoices. Set reminders to avoid missing deadlines, which could result in a fine or a disgruntled partner. You can do this using your email calendar online or on your smartphone. Regularly checking your physical calendar and taking notes a few days before deadlines can keep you on track.
6. Create an Audit Trail
Even if you keep meticulous records, you could still have a tax audit. This is because you must leave a trail of documentation that backs up everything you’ve purchased and paid for. An audit trail is a set of documents demonstrating that the transactions recorded in your books are correct. If you have issues such as tax inaccuracies, missing source documents, or missing transactions, your audit trail will help you retrace your steps.
7. Understand Your Business Expenses
It’s difficult to predict your expenses when you start your business and which costs are tax deductible. For example, costs associated with the company’s operation and related to your income generation are tax deductible. However, you cannot add items purchased solely for yourself to your accounts. Combining business and personal accounts does not give you the right to claim everything you buy.
First, you must review and comprehend what is deductible under US tax laws. If you need clarification on whether a purchase is deductible, consult an accountant or your local tax department.
8. Produce Regular Reports
A good bookkeeping strategy is not only necessary for tax purposes. Regular incoming and outgoing cash monitoring makes performing regular financial checks simple. With the right accounting software, you can verify that all your customers pay their invoices on time and that your reporting is complete. While monthly checks are essential, you should look closely at your accounting and bookkeeping records at the end of each quarter.
For example, paying close attention to trends such as declining or increasing sales, significant expenses, or evidence of late-paying customers. A thorough examination of your numbers will enable you to plan for improved cash flow in the future.
9. Monitor Cash Payments
It’s easy to overlook this when starting, but you must also keep track of your cash payments. Before spending money on business products, any cash the company receives must be deposited into the company’s bank account. Using cash immediately to buy supplies is tempting, but this can quickly derail your bookkeeping system. When recording cash payments, please keep track of who paid so you don’t have to chase them down later.
If you need clarification about managing the cash payment details in your accounting software, consult a bookkeeper who can assist you in setting it up and using it correctly.
10. Plan for Tax Payments
Few pieces of stuff are more satisfying than seeing your company profit. You might notice that you’re making a profit and decide to reinvest your profits as soon as possible. Spending revenue on product development, marketing, and other growth strategies is a great way to keep your company moving – but take your time. Remember that a portion of your income must be set aside for tax purposes at the end of the year.
As a result, you should save at least a portion of your income – perhaps 20% – to guarantee that you have sufficient money to pay your bills. If you need help keeping this money in your business account, open a separate savings account.
Whether you handle most of your accounting or hire a professional to do it for you, the right bookkeeping strategy is critical. Following the bookkeeping tips above will better understand your company’s cash flow, fewer tax issues, and more growth opportunities.
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Our team of experienced accountants can work as a virtual back-office to your business to deliver essential accounting and bookkeeping services cost-effectively within a specific time frame. All business information will be kept secure and confidential.