7 Steps to Better Bookkeeping
As you build a business from the ground up, you’ll need to find your financial footing. Focusing on better bookkeeping allows your business to operate smoothly over your first year, and then beyond.
As you build a business from the ground up, you’ll need to find your financial footing. Focusing on better bookkeeping allows your business to operate smoothly over your first year, and then beyond. Learning how to build that foundation isn’t always easy, though. Keep some of the following tricks in mind, and you’ll be able to move forward feeling confident in your understanding of your business’s bookkeeping.
Hire The Right People
The best thing you can do when managing your business’s bookkeeping, is hire adept people. It’s up to you whether you want a bookkeeper, an accountant, a CFO, or some combination of the three. Whichever direction you choose to go, though, you’ll need to ensure that your new hires have the right skills, experience, and credentials, and that they have similar goals to yours in mind. Likewise make sure you know what you’re looking for in that role.
Understand Your Cash Flow
At the beginning of every month, you’ll want to check in with your projected cash flow. This kind of forecasting will help you prepare a budget for the months to come. While cash forecasting isn’t always accurate, you’ll still be able to use the general direction of your flow to better prepare yourself for expenses to come.
Bookkeeping is an understanding of historical financial data, but that doesn’t mean that knowing how your future is going to play out isn’t important, and understanding the overall picture will improve the quality of your books over time.
Assessing the flow of your income is especially important for businesses in their first year of operation. Opening a business is a costly endeavor. If you need to set aside money each month to afford building down payments, site fees, or other necessary expenses, then forecasting will help you determine how much flex you have in your budget.
File Your Receipts
You absolutely need to retain financial documents that indicate how much your business has spent over time. This includes:
- Cash receipts
- Check deposits
- Cash payments
- Credit card statements
A current and accurate set of financial statements is a critical foundation of any business, whether it’s a startup or a major corporation. Traditionally, you’d want to keep a physical file of these records, but that’s not strictly necessary — just make sure that if you’re using software or reporting that that you understand and trust, good tech is important but not a substitute for best practices.
That said, once you’ve been in operation for a while, you’ll be able to cleanse your receipt folder and move to a bill pay platform like Routable or Bill.com. If you’ve had a receipt for more than seven years, it’s reasonably safe to throw that receipt away or delete it from an online folder.
Set Financial Check Ins
Over the course of a month, you’ll want to schedule financial check ins. These can be conducted personally or with the assistance of a bookkeeper. Financial check ins will ensure that your business is staying on budget and that any unexpected expenses can be paid off with ease. Alternative, a check in can help you adjust your budget if your projected funds aren’t going to be enough to cover your ambitions for the month.
Make sure that you’re keeping an eye on important elements of your business’s financial health. Depending on your vertical, this might be indicators like cash runway, headcount costs, significant investments or funding infusions, or something as simple as AP/AR.
Operating a business is all about being flexible. Note that during your first year of operation, you’re likely to lose money. Plan for that loss ahead of time and check in with your books frequently. If you play your cards right, you’ll be able to move back towards the black.
Conduct Monthly Variance Assessments
At the end of every month, you’ll want to compare your predicted budget to your actual spending costs and gains. This deliberate analysis offers you two perspectives. The first will determine how varied your initial predictions were from reality. As you grow more familiar with your business and its sales waves, you’ll be able to prepare for the future more thoroughly.
The second perspective refers to your spending. If you end up spending more on business costs than you initially anticipated, then you may want to see if there are areas in which you can trim back. Alternatively, if you have money to spare, see if there isn’t a dream you can’t pursue.
Prepare For Tax Time
Above all else, make sure you have your materials prepared for tax time. The aforementioned receipts will come into play, but there’s more to the practice than that. As you hand your taxes off to your accountant, you’ll need to be sure that you’ve accounted for:
- The cost of renting a property
- Employee pay and benefits
- Any donations made in your business’s name
- Taxes withheld over the course of the year
- Your state’s tax nexus
- Your state’s economic nexus
- Any licensing fees that can serve as deductions
Note that you cannot pay your personal taxes as part of your business tax payments. You’ll need a different tax form depending on the size of your business, and those forms leave no room for personal overlap.
So long as you can stay organized, managing a new business’s finances should be reasonably straightforward. Ask for help when you need it and make sure to check in with your financial gurus frequently. It’s that constant eye and willingness to adjust as needed that’ll send you sailing into successful years to come.