5 Eye-Opening Bookkeeping Tips for Entrepreneurs
Managing your business finances is often one of the most confusing aspects of entrepreneurship, but it’s also one of the most important ones.
Poorly tracked finances can stall your growth and even put your business at serious risk once tax season rolls around.
📈Financial health of your business depends on multiple factors, but accurate & regular bookkeeping is key to making data-driven decisions that propel your business forward.
Yet, many creative business owners don’t know where to start when it comes to bookkeeping and accounting.
In this article, I’m going to share my most popular bookkeeping tips for small businesses, so you can effectively monitor your day-to-day business transactions and improve your financial operations. Grab your favorite beverage, and let’s get started!
1.ISeparate Your Personal and Business Finances
If you’re a solopreneur or have a very small team, it may feel like your business transactions are practically your personal transactions.
This could not be further from the truth, yet you’d be surprised how many small business owners make the mistake of mixing their personal & business finances together…and really regret it at tax time.
To avoid endless confusion & problems during tax season, open a separate bank account for your business. It’ll make it significantly easier to keep track of your cash flow.
→ It’s important to note that conducting business through a personal bank account if you have a limited liability company or an S Corp can mean losing liability protection and may cause serious legal issues.
2. Know Your Responsibilities
As a business owner, it’s your responsibility to know the law and what it means for your business. You no longer have a boss who’s going to withhold taxes from your paycheck, so your good standing with the IRS is fully up to you.
As a small business owner, your responsibilities include:
Filing state and federal income tax returns correctly & on time
Keeping accurate business records and receipts
Knowing which of your business expenses quality for tax deductions
Calculating and withholding employee taxes
Submitting documentation to the IRS when you hire independent contractors
Navigating the financial & tax logistics of running a business can be overwhelming, which is why many entrepreneurs decide to invest in professional tax & bookkeeping services.
3. Find Bookkeeping Software That Works for You
One of the most underrated aspects of bookkeeping for entrepreneurs is finding bookkeeping software that you can use meaningfully and efficiently.
Having the right digital tools at your disposal makes it significantly easier to accurately track your business revenue & expenses. So, spend time on figuring out which bookkeeping software is right for you.
Accounting software is reliable, can save you time, and requires minimal effort.
Xero and Wave are popular options, but my personal favorite is QuickBooks. It’s specifically designed for small business bookkeeping and comes with multiple convenient features.
4. Choose Your Bookkeeping Method
Deciding on the accounting method you’re going to use is one of the most important bookkeeping basics for entrepreneurs.
There are two types of accounting methods that you can use for your business: cash accounting and accrual accounting. The difference between them is the timing of when you record a business transaction.
Cash accounting means you record income and expenses as they come and go out of your business account. For example, you’d count an invoice as income once the payment from your client has actually landed in your account.
Accrual accounting recognizes client invoices as income as soon as you send them out and records incoming bills as expenses even if you’re not going to pay them for the next 30 days. This is the most popular accounting method.
The biggest benefit of cash accounting is that it’s straightforward, but it’s also often inaccurate and makes it hard to make informed, long-term decisions.
💡Accrual accounting requires more work, but it’s also typically more beneficial for business owners.
5. Stick to Your Bookkeeping Schedule
One of the most important parts of bookkeeping for creative entrepreneurs is establishing a structure that you’re actually going to follow.
It’s crucial to update your accounting software & books regularly and make sure that all of your incomes and expenses are accurately recorded.
You should sit down and reconcile your business transactions at least once a month, but I actually recommend entrepreneurs to do it more frequently. Ideally, try to spend 10-15 minutes every day keeping your bookkeeping up to date.
Not staying on top of your bookkeeping means opening yourself up to confusion & errors that may take hours to track at the end of the month (or, worse, tax season).
As a busy entrepreneur, it’s easy to lose track of time and find more pressing things to do than update your books.
☕To stick to your bookkeeping schedule, turn it into an enjoyable ritual instead of a boring task.
Pour yourself a hot cup of freshly brewed coffee or do something else that makes you look forward to the few minutes you’re going to spend on your books instead of dreading them. This is one of the most effective bookkeeping ideas for small business owners.
Should You Outsource to a Bookkeeping Professional?
Bookkeeping is more than just a task you need to do to file your taxes correctly.
When done right, bookkeeping can help you make strategic business decisions and save thousands of dollars annually. In fact, one of our past clients recently saved $9,800+ in taxes.
But, like any other professional skill, effective bookkeeping requires specialized knowledge, time, and effort.
This is why many successful entrepreneurs & small business owners decide to hire a professional service for bookkeeping.
Desi Tax offers comprehensive monthly bookkeeping services to help you reduce stress, reclaim your time, and get invaluable financial data to make smarter business decisions. You can learn more about our services here.
