When times get tough, the tough get going. While the COVID-19 pandemic led to the demise of some small businesses, the uncertainty sparked a wave of entrepreneurial spirit in many, spurring the launch of an unprecedented number of new ones.
According to the U.S. Census Bureau, more than 4.4 million new businesses were created in the U.S. in 2020 — that’s
As these new businesses take shape in a new and evolving landscape, it’s important to not overlook the fundamental elements that contribute to a business’s long-term financial health. While most business owners start a venture because they have a passion, talent or craft to share with others, neglecting the administrative side of running a business can impact its longevity.
The good news is that many of these missteps can be addressed by building some best practices into the company's bookkeeping routine. Let’s explore the most common slip-ups and how to fix them.
Mixing personal and business finances
Although running your business is a big part of your life, when it comes to your finances, you still need to separate business from personal. Specifically, this applies to your bank accounts. Failing to do so will make it hard to figure out which expenses are business-related and tax deductible.
Even if you have separate accounts for business and personal finances, be cautious when you use personal funds to pay for business expenses. While a swipe of your personal card to cover an item here and there may seem innocuous, they quickly add up over time and can be hard to keep track of. What’s more, you might forget to account for these expenses and miss out on tax savings down the line.
Bookkeeping without a bank connection
Once you’re all set up with a separate business bank account, bookkeeping for your business becomes easier, as you can use the bank data to keep track of income and expenses. One thing you don’t want to get stuck with, however, is the painstaking and time-consuming task of having to enter your bank data manually.
Using accounting software that connects to your bank digitally eliminates the bulk of manual entry, and makes tracking sales and expenses much more efficient.
Failing to keep records in a safe place (or at all)
A small-business owner came to us for assistance last February to get their books in order for tax season. But here’s the plot twist: They had stored their receipts in their desk drawer, and had just completed a move across the country. In the process of moving, the people they hired to help them move cleared out the drawers and tossed the receipts out, so they were left with no record of their expenses.
Even with a designated business account, it’s still important to retain records and documentation of your transactions. These will come in handy at tax time as well as if you face an audit. They’re also helpful if you’re unsure of which category an expense goes under, so an accountant or tax professional can look at the receipt and advise.
The next time you make a transaction, scan your receipt and save it on your computer, or better yet, use accounting software that links to your bank card and digitally files receipts and invoice copies for safekeeping.
Not hiring the right professional for your business
One way to avoid some of the bookkeeping work is to outsource the task altogether. However, this can be a costly mistake if the person you hire doesn’t have experience relevant to your needs. It may be tempting to turn to a friend for “free” advice, or a fellow entrepreneur who claims to have a great handle on their own finances, but keep in mind that individual needs differ.
Modern bookkeeping and banking solutions can save business owners many hours and headaches. These solutions are designed to save you time and help you feel in control of your finances. Coaching from qualified experts can help take you to the next level of growth and provide advice and insights that are tailored to you. When business picks up and you’ve got a lot on your plate, delegating the task of bookkeeping makes sense as you focus on the bigger picture.
'Putting it off' until tax season
Since bookkeeping is a collection of small, separate tasks that build up over time, it can be tough to tackle all at once. Leaving it to the last minute can cause a lot of stress and lead to significant mistakes.
The best thing you can do is set aside some time throughout the year — I recommend at least once a quarter and ideally once a month — to review your records and ensure everything is up to date and accurate.
Keeping an eye on your books throughout the year can also give you a better idea of your cash flow, which can ultimately help you make smarter financially informed business decisions.
Nearly two years into the pandemic, it’s clear the business landscape has been forever changed. While optimism is high for the millions of new small-business owners across the country, the truth is that starting your own business is anything but a guaranteed success. By taking a proactive and intentional approach to bookkeeping, entrepreneurs can put themselves on the fast track to business longevity.
