5 Good Bookkeeping Habits for Small Business Owners
No matter how big or small your business is, a solid bookkeeping system is key to maintaining your finances healthy.
Disorganized books, lost receipts, and poorly tracked transactions can result in a variety of problems, from issues with your tax filings to not knowing how much profit your business actually makes.
In contrast, a functional small business bookkeeping process can help you make informed decisions and thrive.
Building a sound bookkeeping system for your business starts with implementing good habits into your financial operations.
In this article, I’m going to break down five ways in which you can establish good bookkeeping habits as an entrepreneur or a small business owner. Grab a cup of coffee and let’s dive in.
What Is Bookkeeping?
Before we go over bookkeeping tips for small businesses, it’s important to understand what bookkeeping actually is.
→ Bookkeeping is the practice of recording and organizing your company’s financial transactions on a regular basis.
Keeping your books up to date helps you understand how much your business revenue and expenses are, figure out if your business is profitable, and have more control over your cash flow.
Bookkeeping also ensures that you have a smooth experience once tax time rolls around. If your finances are disorganized, you’re risking filling out your tax returns incorrectly or missing out on hefty small business tax deductions.
Tasks that fall under the bookkeeping umbrella can include:
Keeping track of your transactions
Recording your revenue and business expenses
Invoicing clients & customers
Paying invoices to contractors and/or team members
Managing your bank accounts and credit cards
Organizing & analyzing financial data
Some creative entrepreneurs wonder if there’s a difference between bookkeeping and accounting. The two terms are often used interchangeably, but accounting typically implies analyzing data versus simply recording it.
Regularly Monitor Your Transactions
One of the most important bookkeeping basics for entrepreneurs is to keep track of your business transactions on a regular basis.
To effectively navigate your numbers, you need to have a clear understanding of your cash flow. You need to know how much money is going in and how much money is going out.
This can look like:
→ Recording financial transactions
→ Reconciling cash against receipts
→ Catching questionable charges
It’s crucial to review & refresh your books on a regular basis.
For example, you can dedicate 15 minutes every day to quickly look over your accounting software or Google Sheets to make sure that everything is up to date or do a longer weekly session on a certain day of the week.
Staying up to date on your bookkeeping is key to avoiding overwhelm in your financial operations and during tax season.
2. Create a Meaningful Bookkeeping and Accounting System
A big mistake some entrepreneurs and business owners make is creating a bookkeeping system that’s either too simple or too complicated.
Maybe you have a very basic Excel spreadsheet that doesn’t give you enough data to fully understand your business revenue and expenses. Plus, you may be spending too much time updating it manually.
The other side of the spectrum is trying to implement a system that’s too complicated or difficult to keep track of. For example, some business owners invest in expensive software that they never actually take the time to learn how to use.
Making things too complicated for yourself typically ends up in lost time and frustration.
The truth is that your bookkeeping method — whatever it is — has to be actually functional and meaningful to you.
Building a purposeful & effective bookkeeping system that’s easy to use takes trial and error, but it’s one of the most important parts of bookkeeping for entrepreneurs.
So, experiment with different systems and see what works best for you.
3. Don’t Forget About the Receipts
The IRS requires that you have good documentation of your business expenses, and that includes receipts.
Yet, figuring out how to effectively keep receipts is one of the most difficult parts of bookkeeping for creative entrepreneurs. It can feel messy, inconvenient, and like a hassle.
An efficient system can help.
One of my favorite receipt-keeping methods to recommend is creating a Hubdoc account, setting up yearly and monthly folders, and digitizing your receipts.
This approach is great for busy entrepreneurs because you can do it from your phone without spending a lot of time on it.
You can learn more about my Hubdoc method to receipts here.
4. Invest in the Right Accounting Software
In the modern world, there are a multitude of options when it comes to business accounting software. From Xero to Wave, there are bookkeeping solutions for all types of business models.
You should spend some time figuring out which accounting software works best for your business needs, but I typically recommend clients to use QuickBooks.
It’s specifically designed for small businesses and offers a robust set of features, including invoicing, expense tracking, reports, and multi-currency support.
However, it’s important to remember that even the best software is meant to be used together with a real human, so take some time to learn the ins & outs of your chosen tool.
5. Hire a Tax Professional
You have a business to run, and staying on top of your numbers may not always be your priority. It’s easy to fall off track and then have to spend hours reconciling accounts and chasing after missed payments.
Plus, you started your business because you were passionate about something, and it wasn’t bookkeeping.
This is why many entrepreneurs and small business owners decide to maximize their time and energy by hiring a professional bookkeeper & tax professional like Desi Tax.
In the past, we’ve helped clients ditch stress, reclaim their time, and save $9,811 in taxes.
You can learn more about our services here.
