Running a business can be really tough. There are so many things to keep track of on a daily basis, and it can be difficult to keep it all straight! Bookkeeping and accounting are key parts of running a business, though they may not be your favorite part of the job.

Every small business can and should follow basic principles or processes to ensure strong financial management within their company, and of course, reduce the number of headaches. Here are 10 tips for small business owners managing their bookkeeping and accounting:

1. Don’t mix personal and business expenses

In general, it is best practice to keep business and personal completely separate. Mixing your own costs with company costs on a credit card or bank account can create a major tax filing headache. It can be challenging to distinguish between transactions, especially many months later. This introduces opportunities for incorrect or misleading numbers or even an IRS audit.

By keeping things separate, you also limit your personal liability and simplify your financials. Always consider opening business accounts or business credit, which will separate your credit history and score from your personal one. Many banks or credit unions offer amazing perks for opening business credit card accounts, which can include bonuses, points, low-interest loans, and more.

2. Avoid “The Curse of the Other Spreadsheet” and disorganization

Don’t fall prey to “The Curse of the Other Spreadsheet” with your books, as we not-so-affectionately call it around our office. We have many clients who come to us in need of financial or bookkeeping help, and we can often find the missing information on the “other spreadsheet” that was definitely misplaced. Put the details of each transaction in the books if at all possible rather than attempting to maintain multiple other spreadsheets that must be used to provide the needed backup to your financial statements.

Make sure to consolidate your business’s transaction records, financial statements, and tax documents all year round. While it may seem obvious, we see this issue more than anything: disorganization. Keep everything nice and tidy, and everything will be a lot easier.

3. Keep track of your receipts

Whether you run a local restaurant or a technology firm, it is absolutely essential to keep track of all your business receipts. While it may sound easy to throw them in a folder or shoe box and get to them later, this will do you no favors when it comes to tax season.

Our suggestion is to take some time, whether it be weekly or monthly, to sit down and log or organize all receipts. It may even be beneficial to log them virtually, especially if you don’t want a bunch of paper lying around. This can be done through online services or by taking a picture or scanning the receipt and organizing them in folders with dates or categories. This will save your bookkeeper a lot of time and headache, especially if you organize them more than once a year.

4. Upkeep your Accounts Payable and Accounts Receivable

Accounts Payable (AP) consists of the bills and payments owed to your vendors, whereas Accounts Receivable (AR) is the list of customers who owe you money. Make sure to maintain your AP and AR well, so they do not end up with completely incorrect numbers. We all want to avoid the mess. 

At Right Column, we are often faced with handling the clean-up of AR and AP in QuickBooks for our clients because it is not entirely simple or intuitive to resolve. It would be best to avoid this mess altogether, so make sure to keep everything in the right column.

5. Follow The Matching Principle

In accounting, The Matching Principle states that any invoice or bill should be booked in the same month as the income related to their transaction.

For example, if Project A costs $10,000 in resources and generates $30,000 in revenue, those figures should be booked in the same month (say, April 2022), regardless of when the bills were paid or the revenue collected. Failure to do so can result in misleading or inaccurate financial statements, so it’s key to keep this consistent. If the costs are listed in April and the revenue of the project is listed in June, this can result in overstating or understating the revenue or expenses for that particular month. Therefore, this distorts how the business performed during that month.

6. Reduce reimbursements

Having your company rely too much on reimbursements to owners or employees for expenses can not only look suspicious, but it can result in dangerous tax errors. Many people do not maintain the documentation necessary to properly show the transaction details, so it can result in an error on both the company’s tax return and the owner or employee’s personal return by having it count as income to the owner or employee.

Instead of encouraging employees to buy something for the company and submit it for reimbursement later, allow the company to purchase it outright for them if possible. If this is a frequent task for employees or owners, consider offering them access to a company credit card or bank account to keep everything under the company’s name. Be sure to put the proper safeguards and policies in place to ensure the security of these accounts as well.

7. Make sure to obtain W-9 Forms for each contractor

We often see companies failing to obtain a W-9 Form from each of their vendors or freelancers, and because of that, they can’t properly file their IRS 1099 Forms. This can result in hefty IRS fines, as well as the loss of deductibility on the money paid to the vendor on the company’s tax return. 

When your business hires this third-party vendor or person, it is best practice to have them fill out that W-9 Form initially. This form includes all of the information you need to prepare your tax forms relating to their service, including their business name, address, taxpayer identification number (TIN), and legal ability to work for your business. It may help by sending them the form directly from the IRS website.

8. Pay yourself a salary

As a business owner, do not have the company pay your personal bills rather than taking an official salary. This is a bad practice, as it can often result in a lot of tax trouble for both the company and the owner. To pay yourself with the company’s dime, make sure it is with a “fair wage” for the job you are doing. Be sure to have payroll taxes withheld and your payroll tax returns done; this is commonly included with payroll services. Doing all of this can help you provide easy documentation of income when applying for a loan as well.

9. Set specific and attainable financial goals

Your business may be operating just fine on a day-to-day basis when it comes to your revenue and costs. However, it’s important to look ahead. Setting daily, weekly, monthly, quarterly, and yearly goals for your business for both the short and long term can be essential.

For example, how much money do you want in the bank to be prepared for a major economic shift, if your reliable equipment breaks, if you need a new office, or if the cost of your materials skyrockets? Having a reserve or savings that is backed by all kinds of budgeting, projection, and insightful forecasting will help your business in every way. In turn, how much profit needs to be generated per day, week, month, quarter, or year to meet those goals? These are all questions business owners may need to ask themselves to set their budgets, their product pricing, and more.

10. Consider outsourcing your accounting, bookkeeping, or payroll tasks

You might feel like there’s no such thing as a “9 to 5” day for you. Your email notifications can never stay muted, your phone rings at all hours, and there is always something to handle. With everything you have to juggle in a day, it may be smart to delegate and even outsource some critical functions of your business.

While it may seem daunting to hire an outside company or bookkeeper to handle your books, it offers peace of mind that things are getting done by people who specialize in it for a living. You don’t want to be spending your time and energy just on your financials; you want to be focused on growing, having moments to be creative, and leading your team.

A few benefits to outsourcing your bookkeeping include:

  • Expert accounting and bookkeeping professionals at your fingertips
  • Lower costs and optimized budgeting
  • Unbiased financial advice with no conflict of interest
  • Accurate numbers and easier tax filing
  • Cheaper than hiring an in-house or full-time bookkeeper
  • Saving time to shift your focus back on the business

At Right Column, we are passionate about financial records being kept with integrity. We work with you and your business to understand the direction that you want to go and advise you on how to get there, with services ranging from Bookkeeping, CFO Services, Payroll, Budgeting & Forecasting, and Reporting & Strategy.

Everyone’s time is valuable, yours and your employees’. Instead of trying to double-dip, split, or struggle through your bookkeeping, let us shoulder that load, so everyone can get back to doing what they do best. Let us know how Right Column Financial, Inc. can serve you and your business, today!