New year, new ledger: 10 tips to improve small business bookkeeping habits

Dustin Johnson
By Dustin Johnson
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We get it. If you wanted to spend all day worrying about finances, you would have become an accountant. You’re in business to make money, but that doesn’t mean you don’t dread filling out spreadsheets and balancing the books. As if managing business finances isn't stressful enough. Even more, it eats into time that you could spend on parts of your business that fuel growth.

Handling your business’s finances and taxes is an admin burden, but there are ways you can make it easier. By setting up strategies at the start of the year, business owners can manage their business finances and taxes year-round without much stress and with less effort.

Here are ten strategies to make bookkeeping and other accounting tasks easier this year

#1 - Use bookkeeping and accounting software

If your business is small enough, or you just like to handle all of your accounting in-house, then bookkeeping software can help you keep a pulse on your operation without devoting all of your time to accounting. Without software, you risk making mistakes when handling your books manually. You also slow yourself down. 

Good bookkeeping software will connect directly to your business bank accounts. This means the software will automatically log all incoming and outgoing transactions. The time it takes businesses to track their finances is one of the biggest bottlenecks when paying taxes and bills on time.

Here are a few of the best accounting and bookkeeping software for small businesses:

#2 - Separate business and personal expenses

One of the first steps you should take as a new business owner is to separate your business finances from your personal finances. Your business structure will determine how you pay yourself, but a business bank account is something you should have regardless of business structure.

Here are a few of the benefits:

  • Streamlined bookkeeping: It makes it easier to track business expenses to take advantage of tax deductions.
  • Personal liability protection: Adds extra personal liability protection by keeping your personal funds separate from business assets if your business can’t pay off its debts.
  • Business credit protection: On the flip side, your business credit will be unaffected if a financial situation impacts your personal credit. 
  • Credit options: Provides extra options for lines of credit to help cover cash flow gaps or grow in the initial stages.
  • More credibility: It makes your business look more professional and tells your customers that you mean business. With a business bank account, your business name will show up on checks, credit cards, invoices, and other payment methods. 

#3 - Develop a budget

The beginning of the year is the perfect time to start planning for the year ahead. But if you’re reading this article in the middle of the year, you should start a budget immediately. Businesses that create budgets and financial projections can better adjust to hiccups in the market and make better decisions.

The only question is, where do you start?

  • Gather Paperwork: Get your financial statements and documents in order ahead of time. Start with your receipts, invoices, P&L statements, bank statements, and balance sheets.
  • Set Revenue Goals: Set realistic revenue goals that break down into one yearly target, then quarterly, monthly, weekly, and daily targets.
  • Categorize Expenses: A proper budget doesn’t just list one number in the expenses category. It should break down each expense into categories and subcategories.
  • Track And Update: The purpose of a budget is to compare your projections with how your business is spending and earning. Your findings allow you to make adjustments to cut unnecessary expenses.

#4 - Keep track of tax and licensing dates

The IRS recommends that businesses file their taxes on time, regardless of if they can pay on time. Still, tons of companies pay the failure to file fees every year. The Failure to File Penalty is 5% of the unpaid taxes for each month or part of a late tax return. The IRS also requires sole proprietors, partnerships, and S corporation shareholders to make estimated tax payments if they expect to owe taxes.

A tool like ComplYant can help you keep track of all your tax dates:

#5 - Develop tracking systems for mid to high-cost expenses

When you develop your budget (see step 3), you will categorize your expenses into categories. This gives you a birds-eye view of where your business is spending money. Many of your costs are variable, for example, subscriptions, billable staff wages, and credit card fees. Develop a self-updating system for each expense so you can see a weekly or monthly snapshot without getting stuck in the weeds.

Here are two examples:

  • Use time-tracking software to control how your hourly employees utilize their time and handle tasks.
  • Ask vendors to send you itemized monthly invoices for deliveries, inventory, and other variable items.

| Once your budget is set up, your goal as a business owner is to extract the maximum amount of data in the minimum amount of time. This allows you to make financial decisions that benefit your business without getting stuck in the weeds.

#6 - Use financial data to monitor performance and make decisions

That’s the perfect segway into our next accounting habit. As a business owner, you are one decision away from failure and one decision away from taking your business to the next level. When the stakes are high, you can’t afford to make some decisions without letting data inform you. Use financial statements to advise you on what expenses to cut, what marketing strategies to invest in more, and where to take your business next.

#7 - Categorize your expenses

When we discussed developing a budget, we suggested you categorize your expenses on day one. This will help you track your expenses from a birds-eye view and make informed decisions. There’s one other reason why you should track your expenses. When preparing your taxes quarterly or yearly, the IRS requires small businesses to categorize deductions into their recommended categories. Failure to do so leaves you more likely to be audited, so consult with a qualified CPA.

#8 - Make reconciliations daily

It’s a pain, but do your bookkeeping daily. Here’s a tip that will save you time and stress. Make a daily and/or weekly time commitment to update your finances, no matter how small. Every ten minutes you spend is probably 30 minutes you’ll save in the future. When your most recent expenses are fresh on your mind, you can categorize them faster.

#9 - Start all of this ASAP

We’ve seen this time and time again with new business owners who aren’t highly profitable in their first few years. They wrongly assume that since they’re not profitable, they can delay tracking their finances until their business is at a point they deem to be secure.

What happens next?

Well, they’re hit with the realization that they still have to file taxes yearly or even make quarterly payments. They drop the ball on a few bills or loans that they let slip by the wayside. Next thing they know, their low-margin startup is bleeding cash due to penalties and interest payments. Then, they lose motivation in their business, or they’re forced to close due to financial mismanagement.

Don’t let this happen to you! Instead, implement the eight tips we shared ASAP into your business.

#10 - Find an option that works for you

The most critical piece of managing your tax prep is finding a bookkeeping solution that works for you and your business. The good news is you have a couple of options and don’t have to do it alone:

  • DIY: Do-it-yourself is almost always the most cost-efficient. You can do anything from using an excel spreadsheet to putting pen to paper on a ledger. Make it as easy as possible on yourself and know when it’s time to hire an accountant or subscribe to a bookkeeping service.
  • Bookkeeping Software: This option is sandwiched between hiring an accountant and DIY in regards to pricing. Most bookkeeping software won’t cost your business more than $100/month. With that $100, you can shed hours from your accounting obligations. In business and life, time is money.
  • Outsourced Bookkeeping: As soon as you have room in your budget to outsource your bookkeeping, consider doing it. Services will provide you with a dedicated bookkeeper and software to track expenses. If your business is growing too quickly, consider hiring an accountant full-time later on down the road.

Stay in the loop with your finances - thank yourself later

In business, there are tons of activities that you know you have to do, but you dread the idea of even thinking about them. The purpose of this blog is to make one of those activities, bookkeeping, less stressful and more manageable. The decisions you make daily will shape your business's future, so make them with conviction and every bit of information at hand. Lastly, know that you are never in business “alone.” You have platforms like ComplYant at your side that help business owners like you manage tax deadlines and budgeting.

Dustin Johnson
By Dustin Johnson
Dustin Johnson is a Senior Tax Research Specialist at ComplYant. Prior to joining ComplYant, he spent over eleven years performing tax research at the world’s largest tax preparation company. Dustin holds a Bachelor of Business Administration and a Juris Doctor. Outside of work, Dustin enjoys biking and spending time with his family.

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