If these words make you shudder, you’re not alone. As a small business owner, planning and managing your finances can be a daunting task.
But, small-business bookkeeping isn’t as scary as it sounds; it just has a bad reputation. Here are four small-business bookkeeping tips to help you manage money the right way.
1. Dedicate time on your calendar
Whether you have a lot of expenses or your bookkeeping is relatively straightforward, one thing is certain: if you leave your bookkeeping until Tax Day, filing (or even handing documents over to an accountant) can escalate from a minor inconvenience to an overwhelming nightmare.
Remembering rogue expenses or what happened to that return from the other month can be difficult, so your best bet is to block off some time on your calendar, monthly or even biweekly, so you don’t get too far behind.
2. Use a bookkeeping program
If you’re a first-time business owner and don’t know how to start tracking your revenue and expenses, rest assured that there are many programs available to help you navigate these murky waters.
Many people find that a spreadsheet is the easiest way to record expenses, but you can also use services like Freshbooks, Wave, or Quickbooks to automatically track and categorize expenses or send invoices.
Most bookkeeping programs offer free trials, so try out a few to determine the best fit for your needs. Exploring options is important because changing bookkeeping platforms later can be a huge ordeal.
3. Keep detailed records
When it comes to bookkeeping, too much detail is better than an insufficient amount.
In your spreadsheet or bookkeeping program, note the date of each transaction, the supplier, the specific purchase, and tag it according to categories recognized by the government (Quickbooks has a great resource on this topic).
Make a note of where you store every receipt. For example, if you keep your paper receipts in a purple folder, include this information in your bookkeeping spreadsheet. If you filed an electronic receipt in a folder titled “Business Expenses,” make a note of that as well.
According to MarketWatch, the chances of being audited in 2015 were between 1.2–2.2 percent, but should you ever be audited, detailed record-keeping will save you a lot of time.
4. Organize your records
Have a rock-solid filing system to stay organized throughout the year.
This may seem like a no-brainer, but not following this tip can turn tax time into a logistical nightmare as you scramble to locate receipts, invoices, and other documents.
This doesn’t mean that you need to keep paper copies of everything. The IRS allows you to store receipts electronically, so you can always take clear pictures of your receipts, file them, and then discard them. Just be sure to store your receipts and invoices on the cloud rather than on your personal hard drive. Remember, keep receipts for a minimum of three years.
Whether you keep paper or electronic receipts, it’s a good idea to keep them all in one central location and to sort them into months or quarters. This makes year-end accounting (and audits) much easier.
Bookkeeping for your small business doesn’t have to be overwhelming. Follow these tips, inspect your expenses a month at a time, and you may even have fun with it!