11 Key Bookkeeping Tips for Small Businesses (that Actually Make Life Easier)
If you own a small business, you know how tough it can be. One of the most challenging aspects of it is ensuring all your financials are properly managed. This includes things like ensuring your invoices are paid on time, your expenses are all accounted for, your suppliers and vendors are paid right and on time, and your tax obligations are met.
Even if you have a professional bookkeeper, or use an accounting software like Xero or MYOB, that doesn’t mean all the troubles go away. As a business owner, you yourself still need to know and understand your company’s financial status and have systems in place to ensure your business is always running smoothly.
So below, we’ll outline 11 important bookkeeping tips that every small business owner needs to know. Ensuring these tips are put into practice will make running your business easier, handling your finances easier and – indeed – making your whole life at work easier.
(And don’t worry – if it becomes too much – you can still obtain professional Melbourne bookkeeping services from our team here at 2account!)
- Separate business from the personal (like most things in life)
You know the saying ‘don’t bring your personal life into the office’? Or ‘you don’t do business with family’?
Well the same thing applies to bank accounts.
Having your personal and your business accounts mixed together may seem harmless at a first glance. It’s really not. Every business, no matter how small, should have a separate bank account for their business endeavours. This applies even if you’re a sole trader. In some professions, it’s even legally compulsory.
Having a separate account is key for two reasons.
First, it will make it practically easier for both your and your bookkeeping staff to sort through the purchases and the sales that are actually relevant to your business. It’s probably also less embarrassing for you. Do you really want your bookkeeping scrolling through your own personal purchases?
Second, it’s a psychological thing. By keeping your business and personal accounts separate, your mind can focus on one aspect of your life at a time. Am I buying a new couch for lounge room? To the personal account we go. Am I buying new software to help me with my accounting? Off to the business account.
- Make cloud automation your new best friend
People say your ‘head is in the clouds’ as if it’s a bad thing. When it comes to accounting and bookkeeping, we love the cloud. Twenty years ago, cloud software was nothing but science fiction. Today, it is absolutely necessary for a successful business.
We are incredibly fortunate to be living in a time where could based accounting tools allows you as an entrepreneur to have the power to access information about your business whenever you need it. You can sort through thousands of spreadsheets in a matter of minutes and perform calculations in a fraction of a second.
Accounting software can instantaneously send invoices to your clients on time, track your expenses and generate reports of your cash flow. There are plenty of cloud services to pick from out there, and it’s important to pick the right one that suits your commercial needs.
- Records, records, records
We know, it sounds tedious. Bland. Boring. But trust us – it really does pay off. Every single transaction your company makes – whether it’s entering a multimillion-dollar deal or paying for a taxi fare – needs to be recorded and easy for you to access so that your cash flow can kept on track.
This means keeping solid business records of all invoices, receipts, expenses and so on. This not only becomes useful for tax time, but also allows you to foresee future opportunities for growth. You may even realise you have a tonne of money left over after the end of each quarter, which you can use to invest in commercial opportunities you didn’t actually think was financially viable.
Have you been bombarded with paper receipts? There are many easy ways to digitise them.
Even if you’re a little old school and would rather keep paper records of everything, get yourself a beautiful looking cabinet that gets you excited to keep records. It’s good to have a paper system anyway – just in case something goes missing in the cyberworld.
The majority of cloud-based bookkeeping systems you can get your hands on have fairly nifty functions where you can scan receipts with your phone and send them straight into your bookkeeping system to be reconciled and stored.
- Make your calendar your (other) best friend
Track your deadlines. Set reminders and alerts. Have everything in your calendar.
If your tax deadline or invoice due dates are not in your calendar, you will absolutely miss them.
You’re a business owner. So you have a lot of things on your mind. New challenges arise every single day that you haven’t faced before.
To avoid missing deadlines (and therefore, avoid angry bosses, frustrated clients, annoyed suppliers and the ever-lurking taxation office), set reminders everywhere. Whether this be in your smartphone, desktop calendar, wall calendar or post-it notes, it doesn’t matter.
Just make some form of calendar your best friend.
- Create an audit trail (mainly to protect yourself)
You never know when you’re going to get audited. Whether than be from the Australian Tax Office, the Australian Securities & Investments Commission (ASIC) or some other regulatory authority. That trail of documentation, which backs up every single thing you’ve bought and what your customers have purchased from you, can save your life (and save you from prosecution or a lawsuit).
Having your own audit trail up your sleeve is also just good practice generally. It can help you ‘backtrack’, retracing your steps if you come across any issues like inaccurate taxes or transactions that have all of a sudden disappeared.
- Know (really well) what you’re spending
It can be pretty hard to foresee what you’re going to spend money on when running a business. It’s also hard to know what you can claim as a tax deduction. Always know what you are spending on your business (this includes one-off expenses and your regular expenses) so that you can claim as much as possible back when tax time comes.
- Make regular reports (they don’t have to be boring!)
We get it. Sometimes when people hear the word ‘report’, they switch off and want nothing to do with it. But hey – reports don’t have to be boring! You never know when a report can indicate potential business growth or the next opportunity.
Reports are also like an “x-ray” or a “CT scan” for your business. They show invaluable insight in to your business’ health, and are great for conducting routine business financial health checks. You can perform these checks every year and every quarter, but also every month just to see how the company is going.
Being a master of the numbers means being a master of your business – which is something you definitely want to become!
- Track your cash (like your life depended on it)
This is really, really easy to forget. Especially when you are in the early stages of building your company. You need to record your cash payments like your life depends on it! It’s really tempting to withdraw cash and then go on a spending spree to buy supplies, but this can very quickly throw your bookkeeping system out of whack.
So when you are recording cash payments, always make a note of what the customer paid. You don’t want to go chasing that customer down asking them how much they paid – that’ll reduce the chances of being a repeat customer for sure.
- Know Taxes and Accounting 101 (come on, it’s not all bad)
Most small business owners we know think they don’t actually need to learn that much about tax or accounting if they’ve hired a professional to look after the books and keep finances in order. They also think like that especially if they’ve got an automated cloud software that does the work for them.
But that’s really not the case.
Every business owner needs to know about their basic tax and accounting obligations. Read everything you can online that applies to your business. The Tax Office has some great resources on their website to keep you informed. Understand if you need to pay GST, or corporate tax, or some other kind of tax or fees.
If you don’t have the time to read all that, then it’s also always best to speak to a professional bookkeeping service (such as, ahem, the trust team here at 2account).
- Have tax in your mind when you’re preparing budgets
You’re making money out of your eyeballs, and you think the world is your oyster. You then start pouring all the money back into your company, investing in the next adventure.
Then you get your quarterly tax bill.
And you cringe.
A portion of your income, most unfortunately, is always going to need to go to tax. So we always suggest saving at least a part of your income (at least 20%) to ensure you have enough money to pay that tax bill. If you’re finding it a bit tricky to keep that money in your business account, try a separate savings one.
- Get a professional bookkeeper to do the work
Having a solid cloud accounting software like Xero or Quickbooks certainly makes it easier for small business owners to handle their accounting. But that doesn’t mean you shouldn’t engage a professional bookkeeper. By outsourcing your accounting work to an expert veteran bookkeeper, you can:
- Save a tonne of time, allowing you to focus on your core business
- Save money and internal resources
- Ensure that all your books are always organised and up to date
- Meet all your tax and ASIC obligations on time
When your books are organised by the professionals, you will always have a clear picture of the status of your company, and in what direction it’s going.
So whether you’re doing all the accounting yourself, or relying on software or internal staff to do it all for you, reach out to the team at 2account to see how we can make life on the bookkeeping front that much easier for you.
We’re committed to being your trusted partner in all things bookkeeping, so get in touch with our team to learn how we can help.