Tips for Successful Bookkeeping for Your Small Business
If you want a successful home business, then you need to be successful at bookkeeping. It is crucial for long-term business success. The latest report from the Small Business Administration revealed a sad fact: 12% of all business failures are due to bad bookkeeping. Retirees developing their home-based business should understand the importance of bookkeeping. Keep track of your cash or die.
It is not complicated. Follow these 8 simple steps to ensure successful outcomes:
- Use the Cloud: There is no reason not to use the “cloud” (off site access by the internet) for your bookkeeping needs. The cloud is safe, and you won’t have to worry about your location to have access to your books. Plus, there is a lot of automation that works well with the cloud-based bookkeeping options available today.
- Hire a Consultant: Even if you don’t want to hire a full-time bookkeeper, hiring a consultant to help you get your accounts set up correctly and develop a process will save countless hours and dollars. A home-based bookkeeper will understand your business and develop the process that is right for you.
- Keep Personal and Business Separate: One big mistake many business owners make, especially home-based businesses run by retirees, is intermingling personal and business money. Set up a schedule to pay yourself, and don’t touch your business account otherwise.
- Make Plans for Big Expenses: You may have large expenses to cover. Examples of home-based business expenses include:
- Software Expense
- New equipment expense
- Inventory expansion expense
- Home office expense
- Automobile Expense.
Plan your cash outlays for the year and set aside a little cash each month and you’ll never feel the pinch. My father often told me, “Make a lot, save a lot. Make a little, save a little.”
- Save Money for Taxes: Your accounting software lets you know how much you should be setting aside to pay the IRS. When you get the estimate for your quarterly taxes, set that amount aside monthly instead so that you can make the payment painlessly. Avoid Uncle Sam’s wrath by planning to pay the taxes.
- Audit Your Invoices and Accounts Receivable Regularly: One of the problems with lack of bookkeeping skills is forgetting where the money is. Many businesses fail to realize the money that is missing from your bank account is in your accounts receivable. Keep a sharp eye on your invoices by determining clients who haven’t paid on the account. Don’t let the account go beyond 30 days unless you know the client is good for the debt. Old unpaid invoices will not help you pay your bills.
I had a client who failed to pay me after sending them three invoices. I provided them with a website hosting service and a domain name. We set up an annual fee with a defined due date. I sent off the first invoice and heard nothing. Two invoices later, and no return telephone calls and emails regarding their interest in continuing my service, failed to generate a response. I took the website down 90 days after the official due date. I assumed they didn’t want it and could not be bothered to contact me. So I took the website down and they responded immediately.
Sometimes you have to be tough and follow through with your unpaid receivables. Without a good record keeping system, I would have forgotten about this account. Today, I try to charge a minimal fee every quarter to keep my service from being forgotten or ignored. Beware of the deadbeats seeking charity at your expense.
- Never Use Cash: It’s very hard to keep track of cash, and it is a terrible idea to use it. The risk of fraud is greater with cash transactions due to possible forgetting to book it, and losing receipts. It is safer to use a debit card or credit card so that you’ll have a duplicate record.
A good example of the difficulty in tracking cash is the company petty cash account. The office staff used it as their personal bank. Whenever they needed money, they helped themselves to the cash and wrote a bogus IOU. I discovered this when the office staff kept requesting that I replenish the account. The bookkeeper and the Office Manger left the company and the petty cash account was abolished. We got along just fine without a petty cash account due to the development of the “cashless” banking system.
- Double Check Entries Weekly: Even when you have automated booking of income and expenses with your accounting software, go into your software at least weekly to ensure that everything is working. When you are the sole person in your business, a monthly review may be sufficient.
Once you know where your cash is flowing through your books, you can make better decisions affecting your business. The books will let you know what’s coming in, what’s going out, what is working well, and what areas you need to spend time solving problems to ensure a smoothly running business.
I found a good book for understanding bookkeeping for Home Businesses like ours. It is written for the small business owner in mind with examples likely to affect you. Darrel Mullis is able to make dry concepts into enjoyable lessons that can be easily applied to your business. Click here for the Accounting Game: Basic Accounting Fresh from the Lemonade Stand by Darrel Mullis.