Business Finance

13 Effective Bookkeeping Tips for Small Business Owners

Apr 08, 2022 • 10+ min read
Table of Contents

      If you’re like any normal small business owner, you’re short on time and you’re probably thinking “What is bookkeeping and why do I need to do it?” 

      Bookkeeping is a way for you to track and manage your business finances and is one of the many responsibilities that come with being a small business owner. You need to know what’s happening with your business cash flow and finances. It’s a major factor in your success. 

      Here, we’ll cover some quality bookkeeping tips you can use to simplify your accounting process and make your life easier.

      1. Keep Personal And Business Finances Separate

      Keeping your personal and business finances separate is important for a number of reasons. As a small business owner, it’s essential for you to know what’s happening with your business finances. It’s one of the basic metrics for determining if your business is successful.

      It’s much harder to know where you stand when you constantly have to decipher your transactions and guess whether it was a personal purchase or a business expense.

      This also becomes a problem if you’re using business funds for personal expenses or are spending more cash than you have coming in. But you only see that clearly when there’s a separation between your business and personal funds. 

      It doesn’t just apply to your business bank account. Your business should have its own separate business account and business credit card to handle financial transactions. This avoids commingling business and personal funds. 

      Keeping things separate helps avoid violating any tax laws that apply to your business taxes. It also keeps you out of hot water by limiting your personal liability in legal situations involving your business. This is by far one of the most important small business bookkeeping tips.Now that you’ve separated your accounts, it’s time to track all of your expenses. Business lunches, printer ink, travel expenses—everything. There are a ton of small business tax deductions you can capitalize on, and every penny counts.

      2. Keep Your Receipts

      When you make a quick run to the store for business supplies, it’s second nature to ball up your receipt and move on with your day. But if you plan on including that supply run as a tax deduction, then you’ll need to hold on to your receipts. 

      The IRS actually requires receipts for all business tax deductions. This doesn’t mean you have to keep a shoebox full of faded receipts though. 

      Just snap a picture, verify the info, and categorize the expense. That makes it simple to see where the money is going and even integrates those expenses into your financial statements. Let’s just say your accountant is going to be thrilled with you.

      3. Keep Detailed Records

      The process of bookkeeping is difficult enough without having the appropriate records to reconcile the books. By keeping well-organized receipts, invoices, and other expenses, you’re making life easier on yourself. 

      Your records don’t have to be complicated to be effective. If you’re fond of keeping paper records, keep a secured file cabinet with separate folders for bank statements, payroll, invoices, receivables, receipts, and other important financial information. 

      You have the option to make your small business paper-free with accounting software that allows you to scan in your documentation or upload images to manage and organize your expenses in a few clicks. 

      To get the most out of the expense side of your accounting software, you’ll want to look for features that allow the software to “read” the scanned information. 

      Paired with AI, this helps you reduce the time it takes to enter data from your records and minimize errors. It doesn’t get much simpler than scanning or snapping a photo and reviewing for accuracy. 

      Without the receipts to record what expenses your business paid throughout the year, you might have trouble claiming certain deductions at tax time. This might also result in extra time and costs associated with your accountant or bookkeeper.

      4. Automate Everything That You Can

      There are already enough tasks that take you away from your business. With automation, you can streamline your small business bookkeeping tasklist and get back to doing what your business needs. The right accounting software is a great first step in this direction.

      With Lendio’s online accounting software, you get hours of time back by automating tasks like:

      • Recurring invoices
      • Tracking expenses through linked bank accounts
      • Syncing invoices with bookkeeping
      • Updating payment statuses

      It saves you the manual entry of endless data into a spreadsheet. And there’s no more doing the sales tax and discount calculations by hand. The more bookkeeping tasks you automate, the more time you have for the other aspects of your small business.

      If you’re ready to save time and automate your bookkeeping system, check out Lendio’s risk-free plans and pricing.  

      5. Keep Track of Mileage or Car Expenses

      Do you travel a lot for your business? Keeping track of car mileage and expenses used for business purposes could add up in tax deductions or reimbursements. It’s important to keep impeccable records to take advantage of the deduction for 58.5 cents per mile in 2022.

      Each business trip must include the number of miles, the purpose, and the date. If you travel frequently, that can be difficult to manage without the help of technology. There are apps that allow you to track and log your business mileage by linking with your phone’s GPS. 

      Remember that your business shouldn’t pay for your personal vehicle expenses. That’s still part of keeping your personal finances separate from your business.

      6. Set Aside Money for Taxes

      Each year, business owners get hit with tax obligations they weren’t prepared for. At a minimum, you should be saving at least 30% of your income in preparation for your annual or quarterly taxes. Not saving money for tax preparation can result in fines and penalties. 

      Nobody wants that. 

      The best thing you can do is automate a portion of your income to be deposited into a business savings account. This keeps you from accidentally spending the money you’ve been setting aside while also staying prepared for taxes year-round. 

      It’s easy to forget the tax deadlines for businesses when you have so much else to do. It might be helpful to set an automatic reminder for when the deadline rolls around each year.

      7. Set Aside Time to Review The Books

      Even if you’re not the one doing the bookkeeping and payroll, it’s important for you to block out time to review the accounting records and financial statements with your professional bookkeeper. It keeps you up to speed with how the business is performing and growing. 

      And if you’re doing it yourself, it’s especially important to stay on top of your small business accounting. Small business owners often find it challenging to manage cash flow for their company. 

      Reviewing some of the financial statements, accounting reports, and accounts receivable data helps you uncover where the money is being held up. It’s best to do this weekly or monthly depending on what works for your business.

      Bookkeeping for a small business is time-consuming and complex, especially if that’s not your strong suit. 

      If you don’t have the money to hire an accountant or bookkeeper yet, online accounting software might be the best option for you to get your accounting in order and save time on bookkeeping

      Once you have that down, you can make the business decisions needed to continue making profits, serving your community, and delivering on your brand promise.

      8. Keep Track of Invoices

      Keeping track of invoices is essential to understanding how cash flows into your business. It allows you to analyze trends and establish payment terms that work for you. 

      Lendio’s software makes it easy for you to create custom invoices that look professional and provides a clear view of what’s paid, unpaid, and past due. So you know which clients are current and which ones need a reminder email. 

      In many cases, you can also integrate your invoices with bookkeeping software to produce financial records and statements that make managing your bookkeeping process smoother. If you’re still accepting cash transactions, there’s a way to track that with Lendio’s software too. 

      If you’ve been delivering paper invoices, Lendio’s software gives you the chance to go paper-free and optimize your cash flow with a variety of payment options. So you don’t have to accept cash payments unless you want to.

      9. Consider Hiring a Bookkeeper

      Hiring a good bookkeeping or accounting service is an investment that saves you time and outsources a painstaking task to someone who specializes in it. Most bookkeeping services are relatively affordable and handle everything from accounting to payroll.

      Right around tax time, you’ll be grateful you decided to hire a bookkeeping service. They’ll save you plenty of money and time spent shuffling through receipts. 

      Overall, having a solid bookkeeping system is important to keeping your business profitable, efficient, and running smoothly. By integrating the small business bookkeeping tips we’ve covered, you don’t have to be stressed out by the tediousness of tracking finances. 

      Instead, you can use bookkeeping software, mileage tracker apps, and invoicing software like Lendio’s software to help you stay on top of everything. If all else fails, you could always hire an accountant to help you keep it all together. 

      Disclaimer: This article is not intended as legal or financial advice. Consult your financial and legal professionals for professional advice tailored to your personal circumstances.

      10. Adopt Cloud Bookkeeping Software

      Ditch the spreadsheets and ledgers and get cloud bookkeeping software. Tech can do practically all of the tedious bookkeeping for you. Okay, not everything, but a bookkeeping platform can automate your invoicing, expense tracking, income categorization, and financial reports. That adds up to a lot of saved time.

      Software doesn’t replace the need for professional accounting guidance, but it does simplify the minutia of running a business. It’ll help you get your finances in order and keep them in order. Plus, by using a cloud-based solution, you’ll always have real-time financial data on your business’s performance—no need to wait until end-of-week or end-of-month reconciliations.

      Make sure your bookkeeping tool also has high-quality document management features. The right tool will streamline the process of managing financial documents like invoices, daily expenses, payables, receivables, and receipts. The software should also allow you to easily share your files with your accountant—no copy/paste or screenshots necessary. Less time bookkeeping means more time focusing on growing your business.

      11. Create Cash Flow Forecasts

      This process is where bookkeeping turns from entries to insights. Yes, bookkeeping is a necessary evil for legal purposes, taxes, and audits, but it also informs and drives your business strategy.

      With detailed financial records, you’ll be better able to forecast your cash flow. With accurate cash flow forecasts, you’ll always be prepared to make the best financial decisions for your business. These insights will help you avoid dangerous amounts of debt and leverage your existing capital to its utmost potential. Coming full circle—these informed business decisions will improve your financial health and help you qualify for financing.

      12. Pay Your Taxes

      Remember when we talked about separating your personal and business expenses? Yeah, tax time is when you really reap the rewards of that upfront decision.

      Income tax, payroll tax, unemployment tax, excise tax, sales tax, property tax…that’s a lot of taxes. Don’t let the fees creep up on you come tax season.

      If you’ve been consistent and organized with your bookkeeping, tax time will be a breeze. If you’re using a solution like Sunrise, you can simply invite your accountant to access your transactions and financial reports —they’ll take care of the rest. Easy peasy.

      13. Regularly Review Your Financial Records

      Financial reports won’t do you much good if you never use them. Make it a habit to frequently analyze your statements. Keyword: analyze. Don’t just glance at them or give them a quick read—dive into the details. These are the same reports lenders will be looking at to decide if you qualify for financing. You should be looking for the same red and green flags they’re trying to discover.

      To some degree, you should check your financial records every day. At the end of each day, make sure the money in the bank matches the receipts. By monitoring your transactions daily, you’ll be able to catch errors, fraud, and unexpected fees before it’s too late.

      While it’s important to track day-to-day transactions, you also need to review the big picture with month-to-month statements. The profit and loss statement, balance sheet, and cash flow statement are your most important financial reports. These telling financial documents will give you quick and deep insights into your business’s health. They’re also the first thing lenders and investors will look at when examining your business’s potential.

      Make sure to block off time in advance to take care of your bookkeeping tasks. You’re likely extremely busy, and many things might seem immediately more important than tracking your day-to-day finances. Don’t slip into the procrastination trap—set aside time at the end of each day and month to reconcile your books.

      The Bottom Line

      Overall, having a solid bookkeeping system is important to keeping your business profitable, efficient, and running smoothly. By integrating the small business bookkeeping tips we’ve covered, you don’t have to be stressed out by the tediousness of tracking finances. 

      Instead, you can use bookkeeping software, mileage tracker apps, and invoicing software like Lendio’s software to help you stay on top of everything. If all else fails, you could always hire an accountant to help you keep it all together. 

      Disclaimer: This article is not intended as legal or financial advice. Consult your financial and legal professionals for professional advice tailored to your personal circumstances.

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      About the author
      Seychelle Thomas

      Seychelle is a Maryland-based personal finance writer and business owner. She’s passionate about helping others out of financial pitfalls she’s already dug herself out of. Most of her finance knowledge stems from her career as a Financial Consultant and Branch Manager at the 7th largest US bank.

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