Top 10 Bookkeeping Best Practices for Your Business

Bookkeeping Best Practices

So you’ve started a business – congratulations! As an entrepreneur, you’re wearing many hats to keep things running. One of the most critical roles is bookkeeping. No one loves doing books, but maintaining good financial records is crucial. If bookkeeping has fallen by the wayside in the chaos of launching your company, don’t panic. It’s always possible to implement good practices. Here are ten bookkeeping habits to start today to set your business up for success. Following these best practices will give you an accurate picture of your company’s financial health and ensure you take advantage of all tax deductions or credits you deserve. Keep reading to learn how to tame the bookkeeping beast and gain financial clarity and confidence. With consistent effort, good bookkeeping can become second nature.

Keep Accurate and Up-to-Date Records

To keep your books in tip-top shape, you must stay on top of recording and managing all your business transactions and financial information. The most important thing is keeping accurate and up-to-date records.

At least once every month, reconcile your bank and credit card statements. Compare the charges and deposits listed on the words to your records to ensure everything matches up. Look for any unauthorized charges or errors and report them immediately. Staying on top of reconciliation helps prevent fraud and ensures your books are accurate.

Set up a simple bookkeeping system to record income, expenses, accounts payable, and receivable. You can use bookkeeping software like QuickBooks or Xero or go old school with a ledger or columnar pad. Record transactions as they happen to avoid forgetting or losing any details.

Create digital or physical files to organize your financial documents, like receipts, invoices, statements, and payment records. Make it easy to find what you need when tax time comes around. Scan paper documents or take photos to create a digital backup.

Reconcile accounts and records at the end of each month and fiscal year to check that your books are balanced and ready for financial reporting. Compare your income and expenses to determine whether you are over or under your budget. Then, make changes for the following period.

Following these best practices for accurate bookkeeping and records management will give you confidence in your business’s financial health and ensure you stay in compliance. Keep your books in good shape, and your business will thrive.

Track Your Business Income and Expenses

Keeping thorough records of your company’s earnings and outlays is essential. It would help if you tracked where the money comes in and out to know how your business is doing.

Start by setting up a simple bookkeeping system to record all transactions by hand in a ledger or on accounting software like QuickBooks. Log each sale, payment, purchase, bill, deposit, withdrawal, etc. Note the date, amount, description, and category for easy sorting and reference.

You’ll want separate accounts for income, cost of goods sold (COGS), operating expenses, assets, liabilities, and equity. COGS includes expenses directly related to providing your product or service. Operating expenses include rent, utilities, insurance, marketing, and payroll. Assets are things you own, like cash, accounts receivable, and equipment. Liabilities are amounts you owe, such as loans, mortgages, and accounts payable. Equity represents the difference between your assets and liabilities.

Reconcile your accounts each month to ensure all transactions are recorded correctly. Look for discrepancies, missing information, or balancing issues. Check your income and expense totals against bank statements too. These routine checks will help uncover errors early on so you can make corrections before reports run.

Staying on top of the money flow in and out of your business gives you the visibility and control you need to make intelligent financial decisions. Keep your records up to date and take time each month to analyze where you stand. Your diligent bookkeeping practices will pay off in the long run!

Invoice Your Clients Promptly

Invoicing your clients promptly is one of the most essential bookkeeping best practices for any business. The faster you get invoices out, the quicker you’ll get paid.

Send Invoices ASAP

Send the invoice once you’ve provided a service or product to a client. Don’t delay. The longer you wait to bill, the higher the chance of confusion over what is owed. Do invoicing at the end of each week for any work completed during that period.

  • Include All Necessary Details
  • Your invoice should include details like:
  • Your business name, address, contact information
  • Invoice number for your records
  • Client’s name and address
  • Description of services or products provided
  • Dates the work was completed
  • The amount owed, including hourly rates, quantities, and total cost
  • Payment terms, preferably net 30 days
  • The deadline for receiving payment

Be very specific about what the client is being billed for. This will avoid future confusion and ensure you get adequately paid for all work performed.

Follow Up Politely

If you have not received payment from a client within 30 days of invoicing, follow up with a friendly email reminder. Let them know the original invoice is still outstanding and ask if there are any issues with the billing. Provide the invoice details again for their reference. Most of the time, clients need to remember, or the invoice gets lost in the shuffle. A courteous nudge is often all needed to get them to pay promptly.

Consider Offering Discounts for Quick Payment

To encourage speedy payment, consider offering clients a slight discount, such as 2% or 3%, if they pay within ten days instead of the standard 30 days. This can motivate them to prioritize your invoice to maximize the savings. Just be sure to state the terms clearly on your invoices. The slight loss in revenue from discounts will be offset by improving your cash flow through faster payments.

Proper and timely invoicing and consistent follow-up are essential keys to good cash flow management for your business. Establishing the habit of prompt billing and collections will serve you well in the long run.

Pay Your Bills on Time

Paying your bills on time is one of the most important things you can do for your business. Late or missed payments hurt your credit and damage relationships with vendors and suppliers.

Make a schedule for when bills are due and pay them at least 3 to 5 days early. This gives you a buffer in case there are any delays or issues. Go through all your bills as soon as they arrive and enter the due dates into your calendar. Set a reminder for a week before the bill is expected so you have time to review and approve it for payment.

Pay bills online through your bank’s bill pay service or the vendor’s website. This is faster, more secure, and provides a clear payment record. If paying by check, mail payments at least a week before the due date to account for any postal delays. Always include the remittance stub or write the account number on your check.

Automate as many recurring bills as possible, like rent, utilities, loan payments, and subscriptions. Set these up to pay automatically each month so you never miss a payment or get hit with late fees. Review automated bills regularly to ensure correct amounts before the charges are withdrawn.

Keep business and personal finances wholly separate. Don’t pay for business expenses from your accounts or vice versa. Deposit all revenue from your business into your business bank accounts and pay for all business bills, supplies, and other costs from those accounts. This makes accounting and bookkeeping much easier to manage and prevents co-mingling of funds.

Payroll should also be a top priority. Make sure all employees and contractors are paid accurately and on time. Failure to pay wages when due can result in penalties and legal issues. Work with a payroll service or accountant if needed to ensure compliance with all local, state, and federal regulations regarding employee pay.

Following these best practices for paying bills and keeping good financial records will help your business succeed. Staying on top of accounts payable and maintaining strict separation between business and personal funds are two hallmarks of a well-run company. Keep at it and make it a habit to pay those bills on time, every time.

Maintain a Budget and Track Your Key Metrics

Maintaining a budget and tracking key metrics is essential to keep your business finances in check. Here are some best practices to implement:

Create a Budget

You can make sensible decisions by establishing a budget to understand your income and expenses better. To project revenue and costs for the following 12 months:

Review your previous year’s financial statements.

Include fixed costs (rent, payroll) and variable expenses (marketing, travel).

Update your budget monthly or quarterly based on actual numbers.

Track Revenue and Sales

Monitor revenue and sales to see if you’re meeting your targets. Look at total sales, revenue from each product or service, sales by channel (online, in-store), and your customer retention rate. Make sure revenue is covering your costs and generating a profit. Watch for any downward trends so you can make adjustments quickly.

Control Expenses

Regularly review major expense categories like payroll, rent, inventory, and utilities. Look for areas where you can reduce costs without impacting quality or revenue. For variable expenses like marketing, analyze the return on investment to optimize your spending. Cut any unnecessary expenses.

Measure Key Performance Indicators (KPIs)

KPIs help determine how well your business is doing—track KPIs like customer acquisition cost, customer lifetime value, net profit margin, and inventory turnover. Set targets for each KPI and measure progress monthly or quarterly. KPIs differ based on your industry and business goals. Focus on the numbers that truly impact your success.

Review Financial Statements

You may get a general idea of your company’s financial situation from your income, balance, and cash flow statements. Review statements monthly or quarterly to catch any issues early. Look at trends over time to see growth and spot potential problems. Make sure all numbers are accurate before finalizing financial statements.

Maintaining solid financial discipline is critical to the success and longevity of your business. You can acquire essential insights to help you make strategic decisions and streamline your operations by reviewing your budget, monitoring metrics, and evaluating financials. Keeping a close eye on the numbers gives you more control over your company’s financial well-being.

Ensure Proper Internal Controls

Setting up appropriate internal controls for your bookkeeping procedures is essential to thwart fraud and guarantee accurate financial reporting. Among the fundamental recommended practices are:

Separation of Duties

Ensure no single person controls all parts of a transaction—separate responsibilities like authorization, custody of assets, and record keeping. For example, have one person approve vendor invoices, another person issue payments, and a third person reconcile the bank statements. This helps prevent errors and improper use of funds.

Physical Security

Safeguard all physical assets like cash, checks, bank statements, invoices, and accounting records. Lock doors and file cabinets and restrict access to only authorized personnel. This deters theft and ensures documents are not manipulated or destroyed.

Proper Authorization

Set a policy for different dollar amount thresholds that require management approval. For example, require two signatures on checks over $5,000. Ensure all vendor invoices, expense reports, journal entries, and other transactions are reviewed and approved by someone other than the person entering them.

Perform Regular Audits

Conduct scheduled and surprise audits to verify that controls function properly and transactions are recorded accurately. Review expense reports, vendor invoices, bank reconciliations, and journal entries. Look for any unauthorized transactions or spikes in activity. Make corrections and adjust controls as needed based on audit findings.

Reconcile Accounts

Reconcile your books to external records like bank and credit card statements to catch any discrepancies. Make sure all transactions recorded in your accounting system match the words and investigate any differences. This helps identify errors, omissions, or fraudulent activity so you can resolve issues promptly.

Train Employees

Educate all employees on policies and procedures related to financial controls and proper accounting practices. Provide detailed instructions for their job responsibilities and closely monitor their activities, especially when first hired. Regular refreshers on internal controls and ethics also help reduce risks.

Following these best practices for internal controls will help ensure your financial data’s integrity and reduce fraud opportunities. Be diligent and consistent in applying these principles to all your bookkeeping processes to protect your business’s assets and resources best.

FAQ for Bookkeeping Best Practices

One of the keys to running an efficient business is keeping good financial records. As a business owner, you likely have many questions about best practices for bookkeeping. Here are some of the most frequently asked questions.

How often should I update my books?

It’s best to update your books at least once a week. It can lead to remembering important details or transactions. Aim for updating your books 1-2 times per week, preferably on the same days each week, to establish a routine. This will ensure your records are always up-to-date and accurate.

Should I do my bookkeeping or hire an accountant?

This depends on your needs, skills, and available time. Hire an accountant if you have a large, complex business or limited bookkeeping experience. An accountant can ensure your books are correctly handled and help you gain valuable insights into your business’s financial health. However, you can do your bookkeeping for a small business with straightforward finances to get started. You can then hire an accountant later if needed.

What bookkeeping software should I use?

There are many great options for small business bookkeeping software. Popular choices include QuickBooks Online, Xero, Sage 50cloud, and Zoho Books. These provide an easy way to track income, expenses, accounts payable and receivable, payroll, and more. Most offer plans for small businesses that are affordable and easy to use, even without an accounting background. You can go right with any significant trim business bookkeeping software options.

Should I use cash or accrual accounting?

The two main accounting methods are cash basis and accrual basis. For most small businesses, cash basis accounting is the simplest. This means recording income when cash is received and expenses when bills are paid. Although more complicated, accrual accounting offers a more accurate view of business performance. It records income when sales are made and costs when obligations are incurred, regardless of cash flow. Accrual accounting is recommended if your business has inventory, loans, or accounts payable/receivable. Either method must be used consistently to get meaningful financial reports.

  • Keep good records of all income (sales, accounts receivable, loans) and expenses (bills, accounts payable, inventory).
  • Reconcile your books monthly to ensure all accounts are balanced and up-to-date.
  • Meet regularly with your accountant to review reports and get advice.
  • Stay up to date with changes in accounting rules and best practices. Continuous learning is critical.

Following these tips and frequently asked questions will help establish good bookkeeping practices for your business. Be diligent, consistent, and don’t hesitate to ask your accountant for guidance. Good financial records and reporting are the foundation of a successful

Conclusion

So there you have it. Following these ten bookkeeping best practices will save time, money, and headaches. Staying on top of the books and keeping accurate records is one of the most important things you can do for your business. Make it a habit to do a little bit each day or each week instead of waiting until the end of the month. Your future self will thank you. If bookkeeping isn’t your thing, consider hiring an accountant or bookkeeper, even if just part-time. Their expertise can set you up for success and give you more time to focus on growing your business. What bookkeeping practices do you already have in place? What’s one new thing you’ll start doing this week to improve your bookkeeping game? Your business will be better for it.

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