7 Tips How Small Businesses Should Do Their Own Bookkeeping

Bookkeeping is one of those tasks small business owners often push to the bottom of the to-do list. After all, running the day-to-day operations, serving customers, and growing your business usually feel more urgent. Those tasks have the potential to bring in cash. Doing the books doesn’t. However, if you want a strong financial foundation, consistent bookkeeping isn’t just optional, it’s essential. The good news? With the right system and habits, small businesses can handle their own bookkeeping effectively.

Why does bookkeeping matter? Here are 4 reasons why it does:

·       Cash Flow Clarity: You’ll know exactly what’s coming in and going out.

·       Tax Preparation:  Organized records make tax season far less stressful.

·       Informed Decisions: Accurate numbers help you plan for growth and avoid financial pitfalls.

·       Borrowing For Growth: Lenders and investors require clean financials.

I recommend you don’t do your books and just focus on what you do best: serving your clients and customers. If you must do your own books, here are 7 tips on how to do them.

1. Separate Business and Personal Finances

The first rule of bookkeeping is don’t mix personal and business expenses. Open a dedicated business bank account and credit card. This keeps your records clean and simplifies reporting. This is especially critical if you’re a LLC. One of the main reasons small businesses use this structure is to protect assets from a lawsuit. Well, if you’re lumping your business with your personal assets, then you’re not protecting anything. At least that is how a court of law may look at it. Don’t take that risk.

2. Choose the Right Bookkeeping System

You can track your books using spreadsheets or software like QuickBooks. Spreadsheets are simple and free and are best suited for small or new businesses. As your business grows switch to bookkeeping software. The automation of most of the tasks allows you to be more efficient and can reduce errors. In addition, it will make life easier for your CPA (tax guy) and loan officer if you’re looking for funds for expansion.

3. Track All Income and Expenses

Record every dollar that comes in and goes out. Common categories include:

·       Sales and revenue

·       Cost of goods sold (COGS)

·       Operating expenses (rent, utilities, supplies)

·       Payroll (if applicable)

·       Marketing and advertising

·       Professional fees (legal, accounting, etc.)

Save receipts digitally by scanning or uploading them into your bookkeeping software. You must know the difference between an asset, liability, revenue, and expenses. If you don’t, you can end up categorizing transactions incorrectly, which will most likely result in a costly clean-up.

4. Reconcile Accounts Monthly

Each month, compare your records with your bank and credit card statements. This ensures accuracy and helps catch errors or fraud quickly. Think of it as balancing your checkbook for your business. Under no circumstance should you close the books for a month with a variance between your books and the bank that you cannot explain. As mentioned earlier, improper classification of transactions can lead to a costly clean-up. Equally as costly is having a cash balance difference between your books and the bank. Often the two are related. Fix one and you’ve fixed the other.

5. Monitor Accounts Receivable and Payables

Often overlooked is the tracking of accounts receivable and accounts payable. Accounts Receivable is customers who owe you money. They are usually listed by 30,60, and 90 day intervals. Follow up on overdue invoices. Even better, try to get out of the business of sending invoices entirely by using payment processors like AppStar. These allow you to get paid on the spot and improve your cash flow. Accounts Payable is similar to accounts receivable, except that these are vendors you owe money to. Stay on top of bills so you never miss payments or damage vendor relationships. Remember, the faster you get paid, the faster you can pay.

6. Review Financial Reports Regularly

One of the core reasons you need clean books bookkeeping is to produce valuable insights on how your business is doing. This is done financial reporting analysis. Review:

·       Profit & Loss Statement (Income Statement): This report shows revenue and expenses over a period of time

·       Balance Sheet: This report provides a snapshot of assets, liabilities, and equity at a specific point in time

·       Cash Flow Statement: This report tracks how money moves in and out of your business.

These reports give you the big picture so you can make smarter decisions. If you are having trouble distinguishing between these three reports, it’s time to consult a professional.

7. Stay Consistent

Bookkeeping isn’t a once-a-year task. Set aside time weekly (or at least monthly) to keep records updated. Consistency prevents overwhelm and ensures accuracy. While many small businesses can manage their own books early on, there comes a point when outsourcing makes sense, such as when your business grows, your finances become complex, or you’d rather focus on higher-value tasks. A professional bookkeeper or CPA can save you time, money, and stress.

Conclusion

Doing your own bookkeeping as a small business owner isn’t just about compliance. It’s about control. When you understand your numbers, you can spot opportunities, avoid mistakes, and confidently grow your business. Start with a simple system, be consistent, and don’t be afraid to get professional help when you need it. In fact, your goal should be to put yourself in a position where you require professional help.

Is your business where you want it to be? If not, as always, you can contact me for a free consultation.

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