TD Bank surveyed small business owners about what they love and hate most about owning their own business. Unsurprisingly, flexibility and feeling in control ranked first in the “love” category. Meanwhile, almost 60% said bookkeeping was hands-down their most hated task. Most business owners understand that effective financial management is key to their success. However, a lack of knowledge, frustration in dealing with the task, and even avoidance of these responsibilities can add up to mistakes that derail future growth.
Here are bookkeeping and accounting tips for small business owners to keep you on the rails of success. Protect your business and reduce your stress by avoiding these five costly bookkeeping and accounting errors.
Mixing personal and professional finances
From day one, business owners should have a separate bank account in which to deposit their income and pay their business expenses.
It’s also crucial to designate a business-only credit card. Come tax time, separate statements will make submitting claimable expenses quick and easy, while reducing the risk of a painful audit.
Letting accounts receivable slide
It’s frightening easy to lose track of which customers have paid you and which clients are late. Implement a strict policy and schedule for tracking accounts receivable and pursuing unpaid invoices. Here are some examples of some policies and procedures you can implement.
- ask customers to pay at the point of purchase or no more than 30 days later;
- contact clients to confirm they have received your invoice and to agree on a payment date;
- follow up immediately when payment dates are missed;
- keep accurate and up-to-date records of each client’s payment history;
- and invest in a cloud-based accounting solution to make AR a breeze by automating your monthly invoicing and contacting late payers with a reminder email.
Not using tech to track your expenses
Tired of chasing down missing receipts and struggling to justify claims come tax time? There’s an app for that! Choose from numerous options, such as Receipt Bank, Shoeboxed or Expensify. Check out this helpful article by NerdWallet to help you make your decision.
Many of these apps generate expense reports that are easy to share or sync automatically with accounting software. Therefore, make sure that whichever app you choose syncs easily with your accounting software (QuickBooks Online, Xero, or Sage).
Neglecting to strategize for long-term growth
Effective accounting means managing day-to-day finances while making provisions for future growth. Software and cloud-based solutions offer easy ways to track your financials, but they also generate reports and provide analytic tools owners can use for future forecasting.
Familiarize yourself with the reports your software can generate to track long-term trends, identify and mitigate risk, and discover new ways to increase profitability. Talk to your accountant about which reports and metrics are most important for your particular business and how to utilize them.
For help with more complex financial analytics, strategic planning, and forecasting; consider the benefits of hiring a virtual CFO to help plan for small business success. For more information, read our prior blog post on the benefits of a virtual CFO. Find it here!
Final tip: Don’t go it alone
Small business owners are rarely trained accountants. Don’t try to manage your company’s finances all by yourself.
Collaborate with a trusted professional, invest in quality IT solutions, and spend some time familiarizing yourself with relevant tools and trends.
You’ll feel empowered, which is step one to forging a more love-filled relationship with small business accounting!