7 Bookkeeping Habits Every Entrepreneur Should Adopt
Badly tracked finances can cause your business problems—from poor cash flow to improper tax filings and beyond. These problems can put a young business at risk.
Good bookkeeping habits can help a business thrive—and not just survive.
Dallas-based financial writer and founder of Careful Cents, Carrie Smith, shared her advice on what good bookkeeping means for entrepreneurs, and the habits to adopt that will guide your business to success.
1. Get professional help to prepare tax returns
Business owners are pulled in different directions. Outsource work you don’t have the expertise or time to do. If you’re like many entrepreneurs, you likely went into business to pursue a passion, not to become an accountant.
“Sometimes outsourcing the job is much smarter than trying to tackle it yourself,” Smith says.
Professional accountants can do more than ensure your returns pass muster. A trained eye can spot ways that your bookkeeping processes—and perhaps your business itself—can be improved.
For example, most businesses aren’t aware of all the tax deductions they can claim to reduce their overall tax burden. With a trained eye, Smith was able to help one of her past clients save over $1,000 on her return, which took her from owing money to the IRS to receiving a small refund.
2. Don’t go entirely “hands-off”
Outsourcing your bookkeeping doesn’t mean you should leave it entirely to somebody else. “You’ll want to review reports, understand what’s happening with your business, and ask the right questions (when you don’t),” Smith says.
No matter your level of accounting expertise, it is beneficial to understand some basic business numbers as an owner, including profit, trend in expenses, accounts receivable, profit per customer, and how your client funnel works.
3. Get the right software
“You don’t want to skimp on the program you use,” Smith advises, noting that a good system is worth the money. These days there is more choice than ever, so businesses no longer have to use accounting software designed for accountants.
There are many different options, so look for a system that best meets your business needs—and one that you’ll actually use. If you’re not an accountant by training, then avoid systems that require a telephone book sized manual to get started.
If you’re looking for a shortcut, ask for recommendations from friends who run similar businesses.
4. Document your processes
For her own business, Smith has written documents that explain how bookkeeping processes should run. “No matter who looks at it, it’s done my way,” she says, noting these processes prevent confusion and answer questions before they’re asked.
Consistency is key for good bookkeeping and can help you spot errors later on.
5. Keep expense receipts
You can’t know how much you’re spending on your business if you don’t keep receipts. This is straightforward for credit card purchases, since you’ll have both receipts and monthly statements.
Where things can get tricky is if you aren’t careful with cash expenses. These receipts matter even more since there are no backup statements. Some people keep a small notebook to log cash expenses as they’re incurred. Better yet, entrepreneurs could follow Smith’s lead—she uses an accounting app on her phone to snap pictures of her receipts as she goes.
6. Track your receivables
It’s one thing to issue invoices, but it’s another to ensure they are paid. Keep up-to-date logs of your invoices and the status of each—sent, received, paid, partially paid, and late. Some accounting solutions can even keep track of invoices and flag late and unpaid invoices automatically.
7. Ask your accountant how you can work as a team
Business owners often look at their accountants as just another expense, and only visit during tax crunch time. A trusted accountant, however, can be a key ally in your business, helping to guide its path to success, shaping it to provide better returns, and helping spot potential issues in the business before they arise.
Entrepreneurs should approach their accountants as business partners, not just tax prep, and find someone who can offer insight into the business. A great accountant can help take a business to the next level.
Do you have any bookkeeping tips that didn’t make it into this post? Share in the comments below.
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I’m Andrew Brooks, a seasoned finance consultant from the USA and the mind behind phonenumber247.com.
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