Accounting is one of those things that most people find confusing and frustrating.
However, as a small business owner, it is also extremely important. And until you give it the time and attention it deserves, you’ll struggle with it.
Fortunately, there is an easier way.
5 tips for easier bookkeeping
Accounting can be as simple or as complex as you want. And while there may be some benefits to using an advanced accounting method in larger organizations where small nuances can give way to significant results, for smaller companies there is no need to use complex systems. Simple is always better.
What does it mean to develop a simpler accounting system? It’s actually quite easy. Here are a few helpful tips and strategies:
Keep Expenses Separate
This first suggestion applies to freelancers, sole proprietors, and small business owners running simple LLCs. If you fall into one of these categories, you should keep it business expenses separated of your personal expenses.
Nothing will mess up your accounting like mixing money between your personal bank account and your business accounts. Not only does it cause a headache, but in a situation where you have an LLC, it could even “pierce the corporate veil” and take away any legal protection/divorce you might have had.
Small expenses or big expenses – it doesn’t matter. Keep them separate at all costs. This prevents unnecessary confusion in your accounting processes.
Have a plan for tracking expenses
Speaking of costs, you need a plan. How you track expenses and receipts determines how streamlined and organized the rest of your accounting processes are.
One of the biggest keys is to keep everything in one place. Paper receipts are annoying. Not only are they easy to lose, but the ink fades over time. We recommend having a process where you immediately upload an image of physical receipts and load it into your cloud accounting software. This avoids confusion and keeps accounting streamlined.
Upgrade your back office systems
Having organized back office processes helps you keep a close eye on your bookkeeping. Ideally, this means finding and integrate an ERP system to unify data from all key departments within your organization. (This includes sales, accounting, services, manufacturing, etc.)
If you are unfamiliar with what ERP applications do, they are basically tools designed to facilitate a smooth flow of information throughout your business. It simplifies the task of collecting and managing customer contracts, budgets, expenses, payroll, accounts receivable, accounts payable, etc. By having all this information in one place, you don’t have to go wild to track down data. This makes bookkeeping so much easier (and more accurate).
Choose the right billing system
An accurate billing system makes all the difference in the world. If you are going the ERP route, you must have a good billing feature built into the platform.
However, if you are not using ERP, then you should choose a good standalone option. There are plenty of good options on the market. When looking for the right one, consider features such as cost, integration, and scalability. (Make sure it can grow with you. Switching billing systems is a pain in the neck. There’s no point having to move everything around as your billing needs grow.)
Maintain current profit and loss statements
As you know, the two most important metrics in any business are profit and loss. But don’t wait until the end of the quarter or year to study your income statement.
“Small businesses are constantly going through peaks and troughs in sales, and while some things like seasonal sales can be prepared in advance, there are many factors beyond the business owner’s control. By keeping an up-to-date P&L overview, you can quickly get a snapshot of the overall health of your business at any time,” business owner Roxana Zaman mentions.
Be as thorough as possible in tracking your P&L. Always state revenues, cost of goods, operating income, operating expenses, gross margins, net profits, etc.
Don’t let complex accounting hold you back
Complex accounting may sound good in theory, but it will usually cause more headaches than anything else. By simplifying your approach and getting things back to basics, you’ll get better results almost immediately.