Having good bookkeeping practices means more than collecting payments and storing your receipts. It’s about knowing the financial health of your business so that you can make smart decisions that lead to a thriving operation. One reason why businesses fold is that many owners aren’t keeping good track of their numbers. To avoid that, here is some advice given by Phyllis Johnson, owner, and CEO of PKJ Consulting that will help you make sure you manage your books well.
Get a Business Bank Account
Before you do anything else you should get a business bank account. A business checking account is an absolute necessity, but it is also a good idea to get both a business savings account and a business credit card. This helps keep your finances separate from your business. Not only is this good for organizational purposes, but it also helps you stay out of trouble with the IRS by not accidentally categorizing personal expenses as business expenses or vice versa.
Organize Your Numbers and Your Records
Are you calling an item an expense when it should be considered a liability? Do you have a bill to be paid listed in Accounts Receivable? Transactions such as these should be titled and organized. You should also have a process for keeping track of loans and accounts payable as well as for invoicing your clients. You do not want to develop a reputation for paying your bills late or have trouble collecting payments from clients because you have no idea when these items are due.
You can organize your documents by getting both a physical and an online filing system for your office. Online storage helps keep track of digital assets like passwords and online payment information while having a system for physical copies is a good way to keep important paperwork easily accessible for when you need them.
Get a Bookkeeping System
Software programs like QuickBooks or Wave are a must when keeping track of your finances. A pencil and paper will not do the job. Using these types of programs will only help you accurately record your transactions and print out reports to help gauge the health of your organization. If you are just starting, using Excel or Google Sheets will do, but as you grow and your transactions become more complex, a program that can record those activities becomes necessary.
Set a Schedule to Do Your Bookkeeping
Don’t wait until tax season to do your books. You should review your financials at regular intervals, whether it's weekly, monthly, quarterly, etc. You should also know the quarterly and yearly tax deadlines to file your returns. For instance, 1099s and W-2s should be sent out by the end of January. Partnerships and S-Corps filings are due in March, while C-Corps and sole proprietorships should be filed in April. If you file an extension, your deadline is in October.
Know the difference between employees and independent contractors. While the lines may get blurry at a time when more people are working from home, it’s important to classify each correctly. Make sure you get W-9s from the independent contractors you work with so that you may send out 1099s. You may get fined if you don’t.
To learn more about bookkeeping for your business, take a look at this recent webinar: Business Bookkeeping Basics given by Phyllis Johnson.