Running a successful business starts with masterful bookkeeping. If you don’t stay disciplined and maintain records correctly, you’ll set yourself up for disaster. Here, we discuss the five best accounting practices every small business owner should know and follow.
1. Separate Your Personal and Business Expenses
If you’re a small business owner, you must keep your personal finances separate from your business finances. You should never buy personal items using business funds or pay for business-related expenses out of pocket. This is probably the most crucial accounting practice to follow.
It’s easy to mix business and personal funds – especially if you have a home-based business. Distinguishing between these two aspects of your life can get fuzzy. Where do you draw the line between home and work?
If you don’t separate personal and business finances, you could face serious trouble as your business grows. Financial and legal issues could quickly arise, such as:
- Improper cash flow
- Complications with tax filing and auditing
- Loss of limited liability coverage
- Paying business expenses out of pocket
A simple way to avoid these crises is to set up two different bank accounts and credit cards. One bank account and credit card will be for business expenses; the other will be for personal use. This will help you keep your finances straight.
2. Use Accounting Software
You might think high-end, cutting-edge accounting software is only for big businesses. That’s not true. Small businesses can benefit from digital accounting programs, too.
We understand many small business owners feel more comfortable using physical ledgers and basic tools like Excel. After all, keeping track of revenues and expenses is simple – right? Well, not always.
If you start using accounting software now, you’ll prepare your business for the future. Programs like QuickBooks, Gusto and Xero can help simplify accounting functions and minimize human error. They can also help with the following:
- Maintaining accurate, up-to-date records
- Making tax filing easier
- Analyzing bookkeeping data
- Providing critical insights
Purchasing accounting software is worth the investment in the long run. You can start with easy-to-use programs like QuickBooks and Xero. As your company develops and bookkeeping gets more complex, you can upgrade to software like Sage Intacct and NetSuite.
3. Choose the Right Accounting Method
Choosing the proper accounting method for your business is one of the best accounting practices. You’ll want to have a system in place before dealing with purchases, sales, and contracts. There are two standard accounting methods:
- Cash Basis Accounting. With the cash basis method, you keep track of transactions as they occur. It’s a simple method and is typically limited to companies that only use cash payments.
- Accrual Accounting. The accrual system matches revenues and expenses during a specific period. Unlike cash basis accounting, it doesn’t record when transactions occur. Many businesses use this accounting system, although it can be more complicated.
Many small businesses use a modified cash and accrual accounting method. With this system, you’ll keep track of individual transactions in addition to revenue and expenses as a whole.
4. Maintain Clean, Comprehensive Records
Developing a successful and growing business starts with maintaining clean, comprehensive records. You must store and be able to retrieve copies of your tax returns, receipts, invoices, payroll records, etc., correctly. This will help you avoid complications with the IRS come audit season.
Using the previous accounting practices effectively will make bookkeeping easier. What does that look like, practically speaking?
- Keeping separate ledgers, bank accounts, and credit cards for personal and business use
- Getting to know and utilizing accounting software early on
- Choosing the best accounting system (cash basis, accrual, or modified) and sticking with it
- Saving and storing documentation for tax filing and auditing purposes
5. Get Expert Accounting Services for Small Businesses
As your company grows, bookkeeping will grow more complicated and time-consuming. You’ll need to ask yourself, “Should I get professional accounting services from an expert bookkeeper?” For many small business owners, the answer is yes.
When you hire an expert to take over the ledgers, you get help from someone who can:
- Maintain error-free financial records
- Analyze your company’s payments and purchases
- Generate valuable insights for business growth
- Help you develop long-term strategies
If you struggle with bookkeeping, consider getting reliable accounting services from a firm like G&R Bookkeeping Services, LLC. We help small business owners like you stay on top of finances and lay the groundwork for success. Go online or call (239) 424-9296 to request a consultation and learn more about the best accounting practices.
