A lot goes into it—from managing payables and receivables to balancing books. But what might seem like an overwhelming task isn’t so bad when you break it down to the bookkeeping basics. At the beginning of the year, take a look at the list of deductible expenses and determine which categories you’re most likely to spend money in. Consider creating a labelled file folder for each of these expense categories.

It’s never too early to take ownership of your bookkeeping policies. By following the tips and best practices outlined in this guide, you’ll be more equipped to set a strong financial foundation for future growth, profitability, and ultimate success. There are several effective ways to manage bookkeeping responsibilities in-house or externally by using helpful tools and technologies. When it comes to budgeting for bookkeeping, the difference hinges on whether you hire or manage using software tools. Our partners cannot pay us to guarantee favorable reviews of their products or services. You should consider electronic invoicing to make the process easier and faster.

1. The same goes for using dedicated business credit cards instead of your personal cards, so you leave a clear spending trail.
2. As a business owner, you’ll most likely have to create a complete financial report at least once a year, for tax purposes.
3. Developing a bookkeeping routine prevents you from accidentally forgetting important steps in the accounting process.
4. Double-entry accounting enters every transaction twice as both a debit and a credit.
5. When hiring external team members, keep in mind that some of the responsibility still falls to you as the proprietor.

What happens if you get audited and don’t have receipts?

Set alerts for these entries to give yourself ample time to prepare and submit necessary documents. For example, categorize expenses by rent, utilities, and inventory to make finding information easier later. Similarly, an accurate representation of your current bookkeeping will allow you to forecast realistic financial goals for your business to hit over the next quarter or year. Will your business be generating invoices, cost estimates, or billing statements? Most small businesses will either do cash basis accounting vs accrual accounting their books themselves or outsource the work to a professional. If you’re months or years behind, you might want to get a bookkeeper to do some catch-up bookkeeping for you (Bench can help with that).

Keep Personal and Business Costs Separate

As a small-business owner, individual transactions matter — but so do your overall financial trends. When you track and categorize your expenses and revenue streams, you and your financial advisors will be able to identify different areas of strength or growth based on historical data. It’s a good idea to sit down from time to time and review these trends from a high-level perspective. “Founders are typically smart, and handling my own bookkeeping is what I would do too,” she says. Eversmann encourages business owners to follow IRS guidelines on tracking transactions and to save all receipts for seven years. Consider whether you want to keep your personal and business bank accounts at the same financial institution.

Become Familiar with Bookkeeping Statements

Maintaining bookkeeping tasks is essential for the stability and success of small businesses. With so many moving pieces (including assets and liabilities, and income and expenses), small business owners must stay on top of it all. Modern bookkeeping software can help you stay on top of receipts, invoices, and bank statements, record transactions, and reduce time-consuming tasks. This is especially true for businesses with a high transaction volume or lack a streamlined bookkeeping system. Our bookkeepers here at Bench can do your books for you entirely online. We’ll also give you easy-to-use software to produce financial statements, keep track of your daily expenses, and help make tax time a breeze.

Bookkeeping Best Practices for Startups and Small Businesses

Digital recordkeeping of your business’s finances can streamline your bookkeeping process, reduce clutter, and improve data security. You can file information in your accounting software or another cloud-based program. Categorize documents like invoices, cash flow statements, income statements, bank statements, and receipts. Bookkeeping is the regular practice of updating a company’s financial records to reflect all financial transactions, credits, and debits.

Learn how to build, read, and use financial statements for your business so you can make more informed decisions. Our intuitive software automates the busywork with powerful tools and features designed to help you simplify your financial management and make informed business decisions. Small businesses often work with tax advisors to help prepare their tax returns, file them and make sure they’re taking advantage of small-business tax deductions. Though you may not work regularly with a tax specialist year-round, you’ll want to connect with one sooner rather than later so you’re not rushed come tax time. If the IRS finds that you don’t have all receipts necessary for your business (from $75 and more), you can get penalized.