Entrepreneurs have all sorts of motivations for starting a business. The opportunity to manage the books generally isn't one of them.
And yet, adhering to best practices in bookkeeping is essential to getting a business off the ground—and helping it thrive for the long haul. Maintaining timely, accurate books will reveal in real time how your small business is performing along with possible areas for improvement.
With that in mind, here are five quick tips for doing bookkeeping right:
1. Get on a schedule.
There are some bookkeeping tasks you should be completing every day, such as depositing checks and inputting business transactions as they occur into the general ledger. Each month, you should be taking steps such as reconciling bank and credit card accounts as well as creating and reviewing key financial reports. You should also be performing certain tasks quarterly and annually.
Keeping track of all this isn't easy, so make sure you have a system in place to help you stick to your schedule.
2. Leverage the cloud.
In the old days— say, 2005 or so—only large enterprises could afford cutting-edge business technology. Now a wide range of cloud-based technology tools that simplify bookkeeping and related tasks are within the financial reach of small businesses.
At Supporting Strategies, we are long-time fans of Bill.com and regularly recommend it to clients. Other cloud favorites of ours are QuickBooks Online (general ledger), Tallie (expense reporting), TSheets (time tracking) and Fathom (management reporting and financial analysis). All of these tools help make bookkeeping a little less painful.
3. Know your reports.
Three types of financial reports are critical to keeping you connected to what's going on in your business and helping you maximize growth over time: income statements, balance sheets, and cash-flow statements. Here's an "in a nutshell" description of each:
The income statement tells you whether you're making money or losing it.
The balance sheet shows what your business owns (assets and capital) and owes (liabilities).
The cash-flow statement reveals where your business used its cash as well as how much cash your business has at its disposal.
Be sure to run and review all three of these statements at least once a month.
Where does your business appear to be headed in the short-term and the long-term? What's the outlook for profitability, expenses, cash flow and capital needs? A business forecast can provide the answers.
A forecast should take into account all of your expenses and expected revenues, covering both best and worst-case scenarios. It's a valuable resource to share with potential investors, in case that's part of your game plan. More importantly, it provides projections that will help you set realistic goals and make smarter day-to-day managerial decisions.
5. Outsource your bookkeeping.
I run a company that delivers outsourced bookkeeping services, so I may be biased on this one. But there's no denying that most small-business owners are spread pretty thin. Having the time—and skills—to handle bookkeeping isn't always realistic. If you're not ready to hire a full-time resource for the task, then outsourcing might be your best solution.
A skilled bookkeeping resource can confirm your business is following best practices throughout the year. They can keep your books clean (and audit-ready) while also helping you interpret the numbers and offering guidance on forecasting and financial planning. Supplying data to your CPA on time at tax time is another bonus.
Whether you decide to outsource it or keep it in-house, making bookkeeping a priority just makes good sense. In fact, it could be the difference between the success or failure of your small business.