While starting your own local or online small business is an exciting process, remember to take important steps to protect your investments, resources, and nerve cells by following simple steps in bookkeeping for small businesses.
Why proper accounting and bookkeeping are important for entrepreneurs and small business owners? It does not matter how you feel about accounting, you need to remember that it’s a crucial part of small business survival. According to the U.S. Bureau of Labor Statistics, the survival rates of new private-sector establishments were at their lowest since 1994 last year – only 15.8%. Most professionals in this area agree that one of the main reasons is the overall lack of financial literacy among small business owners.
Related: Smart Budgeting Concepts
So below check the 5 most important bookkeeping tips for entrepreneurs.
1. Keep Business and Personal Finances Separate. It is considered to be a golden rule of effective bookkeeping in small businesses. Remember two main concepts. First, keep business and personal credit and debit accounts separately. Second, keep personal and business expenses separate. An expense directly related to business operations and producing income for business usually is tax-deductible.
2. Pay Yourself and Reimburse Yourself For Business Expenses. As a self—employed owner or a freelancer, technically you don’t pay yourself a “salary”, it is not included in payroll. However, setting up a monthly “owner’s draw” would be helpful to separate your business entity from your personal financials. Reimburse yourself for business expenses including mileage. Your small business can deduct a standard rate per mile for any business mileage your drive on your personal vehicle.
3. Use Accounting Software. The best way would be to hire a professional to do it for you and customize accounting software since there are so many choices available. But if you want to do it on your own make sure you take advantage of learning courses and YouTube videos to help you with setting up and customizing an accounting software according to your business needs. Related: Read more on various accounting software for small business owners.
4. Keep Track and Understand Monthly Bookkeeping Reports. It is surprising how many new entrepreneurs and small business owners disregard how important it is to learn how to read their accounting reports and react accordingly. Small businesses often struggle with cash flow. So it is important to keep track of Accounts Receivable (reports how much your customers owe you) and Accounts Payable (reports how much you owe your vendors). Needless to say, it is crucial to request, receive and pay invoices on time, as well as send your own invoices to see an actual flow of money in your business.
5. Finally, If It Gets Too Overwhelming, Outsource Bookkeeping. There is a multitude of local small businesses just like yours that specialize in bookkeeping. If you outsource you get a professional who you only need to pay for a few hours of work on a monthly or bi-weekly schedule. You can find your local female entrepreneurs and small business owners of accounting firms by checking Online Marketplace Professional Services.