Bookkeeping is crucial in keeping your small business finances organised and understandable. At first, you will probably handle the bookkeeping yourself, but as your business starts to flourish, it is likely you will have less time to dedicate to it; it is now that you might start to look for bookkeeping tips for small businesses. Whether you tackle bookkeeping yourself or need assistance, this guide will walk you through the essentials and show you just how vital bookkeeping is for running a thriving business.
Practical bookkeeping tips for small businesses
Accounting and bookkeeping might seem daunting and time-consuming to a small business owner. Whether you are just getting started or want to refine your bookkeeping process, these bookkeeping tips will help you create a framework for your business.
1. Stay on top of tax deadlines
Missing tax deadlines can be challenging! Not only do they lead to fines, but they can also result in lengthy audits and unwanted penalties. It’s best to avoid the stress of rushing to handle taxes at the last minute and tackle them with confidence instead.
A simple tip you can start using today is to set reminders. Choose a date early in the month so you have plenty of time to prepare your paperwork. Setting aside some money for your tax obligations at this point is also a good idea.
2. Monitor your cash flow
Grasping the numbers can boost your ability to manage a business effectively. Creating and managing a cash flow statement is a great way to monitor your income and expenses. This lets you easily spot payment cycles and seasonal expenses, making planning more accessible.
With cash flow budgets, anticipating expenses and distributing income becomes much more accessible. Some businesses find it helpful to prepare these budgets weekly, while others prefer a quarterly approach. Focus on what suits your business best, but keep a close eye on your cash flow. It often serves as an early warning system for any challenges.
As mentioned above, allocating funds to pay your tax obligations is a critical part of cash flow management.
3. Keep business and personal finances separate
When you start your new business, you might think that using your existing personal bank account is more convenient for every expense. As a small business owner, you will have both business and personal expenses daily, but it is essential to separate them from day one.
Having a single bank account will lead to confusion and can impact your business’s tax liability. You might not claim all the business expenses or pay the correct tax amount to HMRC. By using a separate business account, you will have a clear picture of all the income and expenditures associated with your business. It will help your cash flow and financial reporting.
4. Keep records of every payment
Although it might feel tedious, keeping all your receipts is super important! They help you categorise your expenses and provide the necessary documentation to support your deductions. Having organised and well-documented receipts can save you in case of an audit or a tax investigation.
How about making your life easier by scanning and digitising your receipts? This simple trick can turn tracking expenses into a smooth experience, especially when using a business credit card for purchases. There is software available to make this even easier – your accountant will be able to advise on which one would work best for you.
5. Know your operational costs
One of the most efficient bookkeeping tips for small businesses is to keep detailed records of all operational expenses. You can claim different categories of business expenses, so keep your business account separate from your personal one.
Understanding the needs of each part of the business allows you to spot discrepancies, shortfalls, and little issues early on, helping you prevent more significant losses down the line.
Budget-setting and management tools can guide you in figuring out your operational costs and help you to identify issues during the year – both over and under-spends.
They’ll also inform you about any discrepancies that might need your attention. Remember to update your budget when you notice consistent patterns, whether costs are gradually rising or your sales are improving.
6. Plan for major expenses
No matter your business, it’s normal to encounter situations where equipment needs to be replaced, a large inventory order is placed, or a significant purchase is made. By planning for major expenses, you can approach them calmly and ensure you have enough resources to manage them comfortably without needing to pull funds from other parts of your business.
The easiest way to prepare is to treat it as a dedicated line item in your reports. Consider opening a savings account where you can regularly deposit a consistent amount of money, ensuring it’s readily available whenever needed.
7. Automate wherever you can
When you automate your bookkeeping tasks, you’ll find that they give you a more transparent and accurate view of your business. This is because your financial statements are almost always current, helping you stay in the loop.
Updating spreadsheets and balancing numbers by hand feels a bit outdated, doesn’t it? Embracing cloud-based bookkeeping software and managing your business banking online can make everything so much easier.
With this setup, you can effortlessly sync your bookkeeping software with your business bank account, ensuring you always have precise and current records at your fingertips. Plus, keeping your essential financial data in the cloud means it’s securely backed off-site for peace of mind.
8. Learn when to outsource
As a business owner, you constantly juggle several responsibilities, and with the best will in the world, accounting may not always be at the top of your to-do list. Bookkeeping is frequently the first aspect of your business to suffer, and can cause damaging loss of financial insight if this continues. Consider outsourcing your bookkeeping functions to a reliable service provider to avoid this situation.
Conclusion
Outsourcing bookkeeping to dedicated service providers is cost-effective and provides peace of mind; it is also significantly lower cost than employing someone yourself. At 3E’S, we specialise in offering bookkeeping services for small businesses. Our bookkeeping methods are designed to enhance your overall business performance, giving you more time to concentrate on growing your business. Schedule a free consultation with us and learn more about our services.