Chances are, when you started your small business you weren’t thinking about the time it would take to balance your books. You were more focused on your dream for your business and setting yourself up for success. Balancing the books may not be the most fun part of owning a business, however, it’s a task that shouldn’t be overlooked.
Keeping accurate books isn’t just something you should do to stay organized, it’s something you need to do in case your business were ever to be audited. In addition to having accurate books, you’ll need to have an audit trail of all of the documents recorded in your books. This includes things like purchase orders, invoices and estimates. By maintaining an audit trail, you can ensure your accounting records are accurate and you’ll be prepared in case of an audit.
Good bookkeeping is also important come tax time. Your books give your CPA the information needed to properly categorize revenue and expenses. Additionally, keeping updated books is important in the event that you’d like to apply for a business loan, as your financial institution will want to review your records.
But keeping updated books isn’t just important if the IRS comes calling, it helps you keep a healthy pulse on your business. By keeping accurate books and knowing what the numbers mean, you’ll be able to quickly adjust your business operations accordingly. Bookkeeping gives business owners a clear picture of what works and what doesn’t, which is incredibly helpful when making decisions.
Many small businesses start off as a side job but then take on a life of their own. As your business grows and becomes a greater time commitment, so will your bookkeeping. It’s important to have a consistent routine when it comes to balancing the books. Not doing so regularly and falling behind is a common challenge and you may find yourself trying to catch up at the end of the year. It may be helpful to balance the books at the end of each month at a minimum.
A common bookkeeping challenge that can be avoided is understanding how to classify expenses. Categorizing expenses will help you stay organized, budget and will help you understand which expenses can be written off at tax time. If you’re unsure about how to classify expenses, here are a few small business expense categories to help you get started. Also, don’t forget to record cash expenses!
Another challenge when you’re starting out is understanding how to use accounting software. Some business owners prefer to do things the old fashioned way in notebooks or spreadsheets but accounting software can be a huge help and will save you time. When you start using the software, it’s important to take the time to learn how to use it and set yourself up for success. Once you log your data into your accounting software, all you need to do is review the entries for accuracy and make sure they are categorized correctly. If you need some help learning how to use accounting software, LinkedIn Learning offers online training courses on a number of accounting software programs.
Having a separate business bank account also makes balancing the books easier. When you’re just starting out, you may use your personal bank account instead of a business account, but as your operation grows and is more of a business and less of a hobby, you’ll want a separate account to stay organized.
If you’re looking for additional help with business payments outside of balancing your books, there are digital payment platforms available that help with payables and receivables and can sync with your accounting software. These tools make it easier to keep track of invoices and payments and can save you a lot of time.
Whether you choose to balance your books on a spreadsheet or using accounting software, understanding how the process works and keeping a consistent routine is essential. Even if accounting isn’t your favorite task, managing the finances of your business is crucial to your future success.