12 Bookkeeping Best Practices to Help Keep Your Business in the Green
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Any business, no matter its size, can benefit from following bookkeeping best practices. By keeping on top of your finances, you can make better-informed decisions about your business’s future. You can also avoid costly mistakes, like running into cash flow problems or not catching errors until it’s too late. To help you get started, we’ve compiled a list of eight bookkeeping best practices to implement in your business. These practices will help you keep track of your finances, stay organized, and make better decisions about your money.
1. Keep business and personal finances separate 2. Keep good records 3. Understand your business's financial situation 4. Make a budget and stick to it 5. Keep track of your expenses 6. Have a system for managing invoices and payments 7. Review your financial situation regularly
1. Keep business and personal finances separate
One of the best pieces of advice for small business owners is to keep their business and personal finances separate. This might seem like an obvious tip, but it's one that is often overlooked. One of the main reasons why you should keep your business and personal finances separate is for tax purposes. When you file your taxes, you will need to report your business income and expenses separately from your personal ones. This will make it easier to track and report your business expenses, and it will also help you to avoid any penalties from the IRS. Another reason to keep your business and personal finances separate is to safeguard your personal assets. If your business were to ever be sued, your personal assets would not be at risk if they are not commingled with your business assets. This is why it's important to have a business bank account and credit card, and to keep track of all of your business expenses. Finally, keeping your business and personal finances separate will help you to maintain a clear separation between your work life and your personal life. When you're running your own business, it can be easy to let work consume your entire life. However, it's important to maintain a healthy balance between work and play. By keeping your finances separate, you can make sure that you're not spending too much time on your business and neglecting your personal life. So, if you're looking to implement some best practices in your business, be sure to keep your business and personal finances separate. This will help you to stay organized and to avoid any penalties from the IRS. It will also help you to safeguard your personal assets and to maintain a healthy balance between work and life.
2. Keep good records
One of the best ways to ensure the success of your business is to keep good records. Good recordkeeping provides the information you need to make sound business decisions, track your progress, and keep tabs on your finances. It also helps you comply with legal and tax requirements. There are a few key things you can do to maintain good records: 1. Keep accurate and up-to-date financial records. This includes recording income and expenses, as well as tracking inventory and assets. Good financial recordkeeping will give you a clear picture of your business finances and performance. 2. Maintain complete and accurate records of all transactions. This includes sales, purchases, receipts, and payments. Good transaction records will help you monitor your cash flow and keep track of what's owed to you and what you owe to others. 3. Organize your records. Keep them in a safe, secure place where you can easily find them when you need them. Consider using a computerized accounting system to help you keep track of your records. 4. Back up your records. Make sure you have a backup plan in case your records are lost or damaged. Store backups in a safe, secure location (like a fireproof safe) and consider using a cloud-based storage system. By following these simple tips, you can ensure that your records are accurate and up-to-date, which will help you run your business more effectively.
3. Understand your business's financial situation
As a business owner, it is important to have a clear understanding of your business's financial situation. This can be accomplished by implementing some best practices in bookkeeping. One best practice is to maintain accurate and up-to-date records. This means recording all financial transactions, no matter how small. This will give you a clear picture of your business's finances and help you make informed decisions about where to allocate resources. Another best practice is to establish a system for tracking expenses. This can be done by categorizing expenses and tracking them over time. This will help you identify areas where you are spending too much money and make adjustments accordingly. Finally, it is also important to regularly review your financial statements. This will allow you to catch any errors or discrepancies and make sure that your books are in order. Reviewing your financial statements on a regular basis will help you keep a close eye on your business's financial health.
4. Make a budget and stick to it
The proverbial saying goes that the three most important factors in real estate are location, location, and location. When it comes to ensuring the financial health of your business, the three most important factors are budgeting, budgeting, and budgeting. Assuming that you’re already familiar with the basics of creating a budget, let’s take a look at a few best practices that will help you stick to your budget and keep your business on track: 1. Review your budget regularly You can’t just set your budget and then forget about it – you need to review it on a regular basis to make sure that it’s still accurate and relevant. As your business grows and changes, your budget will need to change too. At a minimum, you should review your budget quarterly, but monthly is even better. 2. Make adjustments as needed If you find that you’re consistently overspending in certain categories, it’s time to make some adjustments. Don’t be afraid to make changes to your budget as needed – after all, it’s not set in stone. 3. Keep track of your progress If you’re trying to get your spending under control, it’s helpful to keep track of your progress. Each month, compare your actual spending to your budget to see how well you’re doing. This will help you identify any areas where you need to make some changes. 4. Have a plan for unexpected expenses No matter how well you plan, there will always be unexpected expenses. To account for this, build a cushion into your budget. This way, if you do have an unexpected expense, you won’t have to completely scramble to make ends meet. By following these best practices, you’ll be well on your way to staying on budget and keeping your business on track.
5. Keep track of your expenses
Every business owner needs to keep track of their expenses in order to maintain a healthy business. There are a few different ways to do this, but the most important thing is to be consistent. One way to keep track of expenses is to create a budget. A budget can help you track where you are spending your money and where you can cut back. It is also a good idea to review your budget periodically to make sure you are on track. Another way to keep track of your expenses is to keep receipts and records of all your business expenses. This is important for tax purposes and will help you stay organized. You can also use accounting software to track your expenses. This can be a helpful way to see where your money is going and to keep track of your spending. Whatever method you choose to track your expenses, the most important thing is to be consistent. This will help you stay on top of your finances and keep your business healthy.
6. Have a system for managing invoices and payments
In order to keep on top of your bookkeeping, it’s important to have a system for managing invoices and payments. This will help you stay organized and ensure that you don’t miss any payments. One way to do this is to create a spreadsheet or use a bookkeeping software program to track your invoices and payments. This way, you can see at a glance what invoices are outstanding and need to be paid. You can also set up reminders for yourself so that you don’t forget to make a payment. Another way to stay on top of your bookkeeping is to set up automatic payments for your invoices. This way, you don’t have to worry about missed payments or forgetting to pay an invoice. You can also set up recurring payments so that you don’t have to worry about remembering to pay your bill each month. Whatever system you use to manage your invoices and payments, the important thing is to find a method that works for you and helps you stay organized. By keeping on top of your bookkeeping, you’ll be able to avoid any late fees or penalties.
7. Review your financial situation regularly
When it comes to your business, regular reviews of your financial situation are crucial. This not only allows you to keep track of your spending and income, but can also help you to identify any areas where you may be over or under budget. One of the best ways to review your finances is to set up a meeting with your accountant or bookkeeper on a monthly basis. During this meeting, you can go over your income and expenses for the month, as well as any upcoming payments or projects. This is also a good time to update your budget, if needed. If you don't have the time or resources to meet with someone monthly, there are other ways to keep tabs on your finances. You can set up automatic reminders for yourself to review your budget and check your bank account balances at least once a week. You can also create a spreadsheet or document where you track your income and expenses. Doing this can help you to quickly spot any changes or discrepancies in your finances. No matter how you choose to review your finances, doing so on a regular basis is key to keeping your business on track. By taking the time to understand your financial situation, you can make informed decisions about your spending and ensure that your business is on a solid financial footing.
8. Implement Internal Controls
To limit the risk of fraud, you should incorporate internal controls into your company's bookkeeping rules and practices. Dual control is used for operations that require sending or receiving payments of any type. For example, one employee should draft the cheque, another should reconcile the bank account, and a third should sign to authorize the payment. When it comes to internal controls, the individual who opens the mail should not be the same person who is in charge of accounting duties.The person who opens the mail should keep a real paper account of what checks were received and when they were received. The checks, together with a copy of the list, should be turned over to the bookkeeper or accountant - you may use customizable check templates for this purpose. This includes the person who opened the mail as well as the bookkeeper or accountant.
9. Improve your Chart of Accounts
To monitor spending for tax and regulatory concerns, most organizations use an alphabetical chart of accounts. However, it is better to utilize your chart of accounts as the foundation of a management accounting tool. will assist you in tracking your client acquisition costs, break-even points, and return on investment for spending. Grouping your sales and marketing accounts will allow you to track the cost of acquiring a customer, separating your General and Administrative (G&A) expenses will allow you to see how much it costs just to keep the lights on, and product or industry-specific expenses will show you the discretionary costs you can cut in a downturn.10. Banking transactions can be downloaded. Reconcile bank statements on a daily basis and resolve issues as soon as possible.
Do not let your bank statements accumulate. Balance them on a regular basis and correct any disparities as soon as possible. Take a moment when they arrive to ensure there are no unlawful disbursements. Business bank accounts have stringent requirements that limit the amount of time it is possible to rectify incorrect electronic transactions or approved checks.11. Tax Planning Throughout the Year
12. Consult a Bookkeeping Consultant Regularly
FAQs
Q1.What are the five accounting stages?
Q2.What are some frequent accounting errors?
Q3.What are the three golden rules of accounting and bookkeeping?
There are a few key takeaways from these bookkeeping best practices. First, businesses should keep detailed records of their income and expenses. Second, they should reconcile their bank statements and credit card statements monthly. Finally, businesses should create a budget and track their progress against it. By following these simple best practices, businesses can ensure that their finances are in good order and that they are making sound financial decisions.