12 Bookkeeping Tips for Small Businesses

These small business bookkeeping strategies can assist you in processing your day-to-day accounts and managing your office.

These pointers will teach you how to do bookkeeping and will improve your competence and knowledge of how to run a successful business.

1. Separate your business and personal banking accounts.

To keep business finances distinct from personal funds, all new business owners should make it a priority to open a new bank account for their company, preferably one with online access.

It's a waste of time to enter transactions for personal costs into your business's accounting system.

It's even worse if you're outsourcing your accounting and employing a bookkeeper to process your accounts while also including these personal expenses...

if they become mixed up with business activities, they'll have to be processed. They must be recorded into the bookkeeping system and coded to drawings, taking up time that could otherwise be spent entering business data by the bookkeeper.

If you need to utilise business funds for personal costs, make a bulk transfer to your personal account on a regular basis, such as once a week, so your bookkeeper isn't swamped with a million tiny personal transactions and you don't have to pay for their work.

Account for Savings

Additionally, register a business savings account and set aside money from your monthly revenues to pay your quarterly tax. Calculate a percentage of your income (25-30%) and transfer it before you spend it. Do it as soon as your customer pays you.

Bank Accounts on the Internet

Bank accounts with online access are unquestionably the way to go these days. It's faster and easier to make payments online and keep track of bank reconciliations in your bookkeeping software than it is to wait for a bank statement to arrive in the mail or to write checks.

2. Recognize the difference between business and personal expenses

Illustrations (Personal Expenses)

A sole trader or proprietor is likely to take money out of his or her business account for personal reasons (drawings). Instead of paying themselves a salary, this can be done (but check with your Accountant first).

Transferring one sum from the business account to the personal account on a regular basis, such as once a week, is a smart habit. The personal account is then utilised to make purchases such as groceries, books, and toys.

With only business transactions and one regular drawing amount, the business account can stay neat and tidy. This also eliminates the temptation to charge a personal expense to the company.

Expenses for personal and business use

A business owner must understand and recognise which expenses can be deducted from profits to lower taxes and which cannot.

• A tax deduction is usually available for an expense that is directly tied to the operation of the business and the generation of revenue.
• It is not a legitimate expense if it is for the owner's personal enjoyment.
• Combining personal and professional activities does not imply that a comprehensive business claim may be established. Taking a client out to lunch or buying them presents are examples of this.

If you're unsure whether or not to claim a cost, go to your accountant or the IRS.

Introduced Funds

The proprietor may occasionally utilise personal funds to make commercial purchases.

These can and should be entered into the business bookkeeping system via bookkeeping journals to ensure that all expenses are claimed and the amount of tax due at the end of the year is reduced.

Don't forget to inform your bookkeeper about these charges and save all receipts and invoices.

3. Selecting the Appropriate Bookkeeping Software

The type of bookkeeping software you choose will be determined by your requirements.

Many software companies provide various levels of service; here are some examples:-

• Cashbook
• Cashbook and Ledger
• Inventory, Ledger, and Cashbook
• Ledger, Cashbook, Inventory, and Transactions in Foreign Currency
• Ledger, Cashbook, Inventory, Foreign Currency Transactions, and Point of Sale are all examples of accounting software.

A Cashbook is required at the very least. A Cashbook might be kept in Excel or even a school exercise book.

In general, a growing company may get by with software that can:-

• Accounts Receivable and Payable, Cashbook, Ledger, Bank Reconciliations

A comparison of popular bookkeeping software QuickBooks, Xero, and Sage is presented below.

If you're on a budget, there are numerous free bookkeeping software solutions accessible. I've broken out the ones that are of good quality and are kept up-to-date in this section.

Most of the above-mentioned bookkeeping software modules allow you to export numerous reports to Excel for:

• simple customization and modification
• Creating charts for easy reference
• from one period to the next, incorporating diverse components of reporting.