One of the most time consuming activities when you have a small business is keeping track of the books. Once you get in stride, however, things can get more seamless and comfortable. What’s more difficult is making sure everything is in order for tax time or your accountant could sting you with extra fees to sort out your unruly bookwork.
How will you manage to stay profitable for the long run then? It has something to do with a little concept we call bookkeeping. It allows you to have a bird’s eye view of money flowing in and out of the business. Having a clear grasp of your finances can help you in planning ahead.
Importance of Bookkeeping for Small Businesses
You must be wondering, “is bookkeeping that important for such a small businesses?” The answer is a resounding yes! There is very little difference whether you are a big or a small operation and you will still have to report your income and pay your taxes.
Here are a few reasons why small businesses need bookkeeping:
1. Budget your Incomings and Outgoings
By keeping track of the cash flow, you will know how much you need to set aside for different responsibilities. This gives you a clearer picture of how much will be left. Leftover cash can either become profit or capital for expanding the business. Do you need an extra hand or a new printer? Your budget will tell you if you can afford it.
2. Track Payment Deadlines
As a small business, you have responsibilities you need to take care of, such as tax, rent, or even loans. Bookkeeping allows you to keep track of important dates when those obligations need to be fulfilled, helping you stay in the clear of piling financial woes. Keep on track of those small bills because once there is a number of them, they can bring your operation to a standstill if services are suspended.
3. Evaluate your Profitability
While you look at how much money comes in and goes out, you can see how much is left, say, in a week or a month. This then tells you if your business is thriving or if it is in dire need of intervention. After all, you need a business to make a profit right? Bookkeeping ensures you do that by the end of the day.
4. Set Goals and Projections
Continuously knowing your status financially is important, especially for small businesses. By knowing where you stand currently, you will be able to forecast attainable goals in a certain timeline. This gives you a vision as to where you want your business to be after a few months or years. And that’s a trait of a successful business entity.
Basic Bookkeeping Tasks You Should Do
Now that you know the importance of bookkeeping, what specific tasks do you need to do regularly? Here are some that small businesses should benefit from.
The invoice is how you get paid. Quotes can be turned into invoices and asking for a deposit before work commences is a good business practice. Keeping the cash flowing into the business is going to be what keeps you going through the first year of trading and into subsequent years. If it is more of a project-based venture, you can invoice once you’ve finished the job. If you have an agreement to do it on a specific date, then stick to it and don’t delay.
2. Account for Expenses
Don’t keep your receipts in your bag or wallet. Make time each week to enter them into your spreadsheet or accounting program. As soon as you can, document your expenses as it makes it easier to lodget your BAS or taxes.
3. Deposit Payments
You don’t want cash hanging around, as it can draw temptation! You need to keep money in a safe place, like the bank. If you don’t like the hassle of regularly going to the bank and tackling the long lines, ask if they have the option for a mobile deposit. This way you are still able to keep the money where they should be. Encourage your customers to pay electronically whenever possible as this means one less trip to the bank each day.
4. Check Bank Statements
It is imperative that you take note of all bank documents and other source documents related to your business. Evaluate them if there are any mistakes in the service charges, or if some deposits or transactions weren’t recorded. These will be very important for the accuracy of your planning. Banks make mistakes just like any business and the quicker you draw their attention to it, the quicker it can be resolved.
5. Journal Entries
Usually done on a monthly basis, collect all records of cash flow and put it on a ledger system. This enables you to monitor the debits and credits of the business, and then can be used in important decisions and evaluations moving forward.
6. Weekly Cash Flow Review
Thinking about your daily cash flow isn’t really indicative of your business. Instead, you can do it on a weekly or monthly basis. Evaluate if there is too much money going out, and then make sure to compensate and adjust for the next week. This allows you to remain on top of the cash flow and plan ahead.
7. Measure Progress
Finally, look at your records and evaluate how you’re doing. Are you earning, or are you simply breaking even? The ideal time to do this is on a quarterly basis, and while you can compare the current one to the previous quarter, you can also make a comparison to the similar quarter in the previous year.
Running a business is fun, and you don’t want that to end, right? So to remain relevant and profitable, make sure to do these simple bookkeeping tasks.