Small Businesses: Avoid Making These 9 Bookkeeping Mistakes

small business bookkeeping

With real-time insights, you can make on-the-fly decisions about where to spend and where to save, helping your business stay on budget. You might have an unexpected downturn in sales due to uncontrollable external circumstances, or maybe you need a financial boost during slow periods in a seasonal business. Brands with big growth goals often need to secure funding to make investments in new product developments, inventory, retail stores, hiring, and more. The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.

small business bookkeeping

Enter your login credentials for that account and the software imports recent transactions, usually 90 days’ worth, and adds them to an online register. Banks have been tightening up their security (which is a good thing), but you may have to jump through a couple more hoops to get connected. Zoho Books is the small business accounting element of Zoho’s ecosystem of productivity applications.

Determining Whether to Use Digital or Manual Bookkeeping for Your Business

Be sure to check out our accounting software reviews to determine which application may be right for your business, but here are a few options to get you started. Having a solid bookkeeping process in place will allow you to do just that, while also tracking all of your business expense deductions, a necessity in case your business is ever audited. One of the most important—and often most difficult—rules to follow when running a small business is keeping your business and personal expenses separate. Instead, all of the money put into the business is tracked in capital accounts and money taken out appears in drawing accounts. What’s important here is that your books should carefully record all of the owners’ equity accounts. It’s important you keep this up to date so that you can send timely and accurate bills and invoices.

  • With Premium, you get expert tax prep, filing, and year-round tax advisory support.
  • You communicate with a dedicated bookkeeper through one-way video chat (they can’t see you) or email.
  • Uncomplicated navigation, an attractive, intuitive UI, and exceptional mobile access add to its appeal.
  • Most service-based small businesses will find that Simple Start meets all of their needs.
  • If you have your bank accounts linked to your accounting software, reconciliation is a quick and easy process.

US business owners can use cash-based accounting if revenues are less than $5 million, otherwise they must use the accrual method. Small business owners also need to determine whether they’ll use the cash or accrual accounting methods. Start by opening up a checking account, followed by any savings accounts that will help you organize cash flow funds and plan for taxes. For instance, you can set up a savings account and squirrel away a percentage of each payment as your self-employed tax withholding. A good rule of thumb is to put 25% of your income aside, though estimates for high earners might be closer to one-third. Granted, this process will not be easy if you’re not using accounting software, but in order to know how your business is performing, you must have an accurate depiction of that performance.

You could save thousands on your taxes.

Your profit and loss statement is a summary of your revenue minus expenses for a period of time, usually a quarter of the year at a time. It can be anything from buying equipment like computers, vehicle to help you get from A to B when on the job or even furniture and other items for your business. All of these expenses fall under the loans payable account invoice examples for every kind of business which tracks what you owe and what’s due for you to pay. All of the products your business has in stock (whether they’re sitting at the back or still sat on the shelf) need to be carefully tracked and accounted for. This part is important because the numbers you have in your books should match by doing physical counts of the inventory on hand.

How to do simple bookkeeping?

  1. Create a New Business Account.
  2. Set Budget Aside for Tax Purposes.
  3. Always Keep Your Records Organised.
  4. Track Your Expenses.
  5. Maintain Daily Records.
  6. Leave an Audit Trail.
  7. Stay on Top of Your Accounts Receivable.
  8. Keep Tax Deadlines in Mind.

Most accounting software does this for you, so you don’t need to worry about an extra step. Though often confused for each other, there are key differences between bookkeeping and accounting. At its core, bookkeeping is about recording financial data, while accounting is about interpreting financial data. Talk to your accountant to figure out if you can use off-the-shelf accounting software or if you’d benefit from customizing it. Your accountant should be able to not only offer advice but also set up the software for you and show you how to use it.

Recording every transaction

By knowing what you owe and when payments are due, you can plan your cash flow and ensure that you have the funds available to make timely payments. The integration of bookkeeping apps into small business operations has become a necessity in modern times. Online software provides business owners with greater insights into their companies and can be a valuable tool for managing financial information. One popular option is Excel, which offers well-designed bookkeeping templates to manage basic bookkeeping tasks.

  • We chose Zoho Books as our best small business accounting software for automation because it offers robust accounting features and automation for bank feeds, categorizing, invoices, and more.
  • You may benefit from utilizing these 10 deductions to lower your taxable income.
  • That said, the depth of its features might be overwhelming to very small businesses but welcomed by companies with more advanced needs.
  • You could be fined, assessed a penalty, or have the IRS place a lien on your business.
  • It’s missing some features that competitors offer, and it includes some language and concepts that rivals keep in the background, but it’s a solid, inexpensive solution.

Accounting and bookkeeping work hand in hand, and although many people refer to bookkeeping and accounting interchangeably, these two operations aren’t technically synonymous. Doing nothing about bookkeeping isn’t the only bad way to run a business. If you don’t keep your books straight, every possible outcome is disastrous. You could be fined, assessed a penalty, or have the IRS place a lien on your business. After the delivery of goods or performance of services, you should send the invoice immediately—at least within 48 hours. Customers are likely to pay quickly since the transaction is still fresh in their minds.

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It’s now cloud-based and allows you to choose your industry, company size, and needs. It will match you with specific accounting solutions and is used by over three million businesses. Cash and accrual accounting differ in the timing of when you record each transaction your business makes. So you put a purchase or sale in the books after the money has changed hands. In accrual accounting, you immediately record a purchase or sale, even if no one has paid anything. Accrual accounting offers a fuller picture of assets and liabilities on your company’s balance sheet, providing a better sense of your profitability.

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Writing paychecks in a timely manner is important to your employees. More important to your business is making sure proper withholding and tax payments are deposited in a timely manner. Figure out what you don’t have the time or want to do, then pay someone else to do it.

Best Small-Business Bookkeeping and Accounting

Meanwhile, tasks like closing the books, reconciling accounts, and producing financial statements are outside your normal business operations and might be best left to a professional. The first nine bookkeeping and accounting tips above apply to all small business owners, whether they do the bookkeeping themselves or outsource the process to a professional. Even if you’re self-employed or a freelancer, I highly recommend you have separate bank and credit card accounts that are used exclusively for business.

But, by outsourcing your bookkeeping needs, you can free up valuable time and resources to focus on other important aspects of running your business. If you’re looking for a free accounting template, a quick online search will yield numerous results. With so many options available, finding the right template to meet your business needs has never been easier. While it’s at least as capable as some of the best of its competitors, Zoho Books is surprisingly affordable, and it even has a free version, though prices for paid plans  increased this year.

How do I make a record book for my small business?

  1. Select an accounting method.
  2. Determine how you will record transactions.
  3. Set up a chart of accounts.
  4. Open a business bank account.
  5. Determine how your business will get paid.
  6. Keep a record of expenses.
  7. Make a schedule and set reminders.

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