As a business owner or a manager, it’s vital that you understand the financial aspects of your business. Here are our top 11 accounting and bookkeeping tips for small business owners to make these financial processes simple. Our goal here is to help you realize how accounting info can bolster the growth and success of your business.

Small business owners are often overwhelmed with gazillion tasks on their to-do lists. Business owners and entrepreneurs shouldn’t be doing their own accounting and bookkeeping. The added pressure will make it hard for contractors to manage other aspects.

Accounting is not the strongest skill for many business owners, and that is OK. Don’t you think that having some basic information on how to manage a business bank account will help in the long run?

It can be difficult for owners with limited accounting knowledge. We believe that is we share some ideas and best practices that can help you manage your business smoothly, prevent audits, and plan for the future, that might be helpful.

#1 You need to Keep Business and Personal Finances Separate

If you are a self-employed person, we suggest you have dedicated credit card and bank accounts that are only used for business. If you eliminate your personal purchases from your business accounts, you will cut down the transactions you have to reconcile.

We’ve seen many situations where many transactions in business accounts were actually personal. In the end, it is expensive, time-consuming, and can create mistakes when sorting through personal transactions. Your ultimate goal is to completely separate personal and business expenses from your bank accounts and credit cards. Business expense trackers can be used to separate personal expenses.

#2 You need to Pay Yourself Salary

Proprietors of S corporations and C corporations should pay themselves a fair salary. And they should do it via the payroll system (just like a “regular” employee). However, we also suggest that solopreneurs, self-employed owners, and freelancers also pay “salary” to themselves. It’ll actually be an owner’s share and thus not included in payroll.

When you pay yourself a salary, that supports the idea that your business is an independent entity (separate from you). When your business pays your personal expenses directly, that reduces the need for you to disobey point number one. You can have the business issue a check (once per month). And you deposit this check into a dedicated account (that is used to pay your expenses).

#3 You need to Reimburse Yourself for Business Expenses

Sometimes you still have to pay for a business-related expense with your own money. The primary rule says that business-related expenses should show in your business bank account. The company can reimburse the expenses you paid using your own money. The check should differ from your salary.

The way you reimburse yourself should be precisely the same as for your employees. Attach the receipts to the expenses along with the vendor, date, and purpose. You get a check from your business for the correct amount. This might be a hassle, but your accountant will deduct the expenses because you paid them using a check from your business account.

#4 You need to Track and Reimburse Business Mileage

Did you know that any business can write off a standard rate per mile? The rate is 58.5 cents for the year 2022. This applies to any business-related mileage (when you use a personal vehicle). So, don’t forget to track the miles, date, and the goal of each business-related trip. Then you submit it for repayment together with the monthly expenses (as we discussed in tip #3).

#5 You need to Keep Your Receipts

The IRS requires receipts for tax deductions, even though accounting systems don’t rely on them. An old way to keep receipts used to be having a file for each vendor. A better way is to scan your receipts. Then you can attach a digital copy to the transaction within your accounting software (many accounting applications offer this feature). Receipt scanning apps can help you sort receipts.

#6 You need to Invoice Within 48 Hours

You need to send the invoice within 48 hours after the delivery of the goods or services. Besides, since the transaction just happened, customers are more likely to pay quickly.

Sending invoices can be quicker and easier if you switch to electronic invoicing. The majority of accounting professionals have switched to digital processing (especially during/after the COVID times). Sending the invoice within 48 hours is the accounts receivable (called A/R) golden standard. It helps accelerate collection, which will increase cash flow of your business.

#7 You need to Send Payment Reminders

If customers don’t meet a deadline, contact them ASAP and remind them of their invoice. Even better idea is to send them payment reminders a few days before the actual due date. Don’t assume that customers are trying to evade payment on purpose. However, if they don’t respond, you can send the collection letters to secure payment and to have the documentation in case of legal action.

Photo Credit: Accounting Blog

#8 You need to Outsource Payroll

Nearly 45% of small businesses actually outsource their payroll accounting because it is quite time-consuming and not very easy. We recommend you follow the same practice. Such important (but tedious) tasks as issuing paychecks, withholding employee taxes, and filing payroll tax returns can all be done quite easily and for a fair price. Accounting entries will be automatically loaded when payroll providers link with your accounting software.

If you decide to outsource your payroll, we recommend to open a dedicated checking account just for payroll. Then your payroll service provider won’t have access to your main business account. Even if your primary account is overdrawn, you can make sure there is money in the payroll account.Bouncing payroll checks is one of the worst things that can happen to an employee.

#9 You need to Hire a Pro to Set Up Your Accounting Software

Setting up a system for small business bookkeeping software can be difficult. The better adapted the program is to your business, the simpler it will be to use it. A pro can help you create and customize a chart of services, products and accounts. They should also show you how to change the lists. Transactions like paying bills and issuing invoices will be easy once the lists are complete.

#10 You need to Assign Bookkeeping Tasks

The above-mentioned accounting/bookkeeping tips above are relevant to all the small business owners. No matter if they do the accounting themselves or hire an accounting firm. Now you need to figure out how much work you will do yourself.

Here’s an extensive list of the key bookkeeping and accounting tasks. We also included some suggestions for a small business on when to do them and to who should be responsible for which task.

11 Accounting and Bookkeeping Tips for Small Business Owners

Accurately issuing invoices and paying bills is an important task in running your business. On the other hand, it’s best to leave more involving tasks (such as closing the books, reconciling accounts, producing financial statements) to an accounting professional.

We recommend new owners do the weekly tasks on their own to learn the software they are about to use. Such bookkeeping/accounting software as QuickBooks (or any other similar software) has excellent free online tutorials. When your business grows, these weekly tasks can be done by an employee, potentially becoming daily tasks.

#11 You need to Analyze Your Accounting Reports

You should not ask your accountant/bookkeeper to evaluate your accounting reports. Accountant’s main job should be to input accurate data into the app. It’s the owner’s/manager’s responsibility to review the data of the accounting software in order to run the business. Quite often small businesses and entrepreneurs battle with cash flow. The good news is, there are a few basic accounting reports that can benefit you:

– Cash flow statement

– A/R aging report

– Accounts payable (A/P) aging report

It’s vital that you know how to make those statements on your own. And you should review them weekly.

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