Small business bookkeeping is imperative and here’s why: It’s often said that lack of money is the reason for most business failures but in reality, poor small business financial management is more often at the root of the problem.
If your small business is like most, your financials run according the calendar year and you’ve wrapped up your 2016 tax season. That makes now the perfect time for a “spring cleaning” of your books to ensure that staying on top of your business's financials is easier than ever.
Use these tips from Excelsior Growth Fund to clean up your books, establish a beneficial bookkeeping routine and grow your overall business financial health:
1. Optimize your bookkeeping software.
While “keeping the books” refers to the old days of paper accounting ledgers, these days longhand recordkeeping in ledgers is discouraged. Instead, invest in bookkeeping software, like QuickBooks® for small businesses.
Make sure you use the latest version and that you’re trained on it – most software programs have built-in tutorials that are easy and quick to learn. Accurately account for all income and expenses properly, and take simple steps to eliminate unnecessary mistakes, like disabling or deleting entry accounts that you don’t need so you don’t end up with errors or cluttered reports.
2. Get the full financial picture.
Generate a balance sheet regularly – it’s an accounting of assets (what your business owns that can contribute to revenue generation), liabilities (what your business owes, like loans, mortgages and bills) and equity (what is yours)—or what’s left when all assets are cashed in and all liabilities are paid off.
This information is essential to business owners, as well as to potential lenders and investors. Your software program may generate this for you, or you can learn to create yours using free online tutorials from SCORE. Keep in mind that you are legally responsible for all the information presented in your books.
3. Commit to reviewing your financials regularly.
When your business’s financials are up-to-date and accurate, you’ll spot problems early. If you review your financials on at least a monthly basis, you may discover just how cyclical your business really is, and then decide to take out a business line of credit to cover the slower months.
You’ll also find opportunities that you may otherwise have overlooked. Even if you pay someone else to do your bookkeeping for you, it’s imperative that you understand your financials and check them often.
4. Review your files for any outstanding invoices.
According to an article in Entrepreur.com, U.S. small businesses have a collective total of about $825 billion in unpaid invoices – or an average of $84,000 per business. Staying on top of your financials means knowing what you owe and who owes you, and taking action on both.
If you have open invoices in accounts receivable, send reminders to your clients. Going forward, consider offering an incentive for early payment, rather than assessing a late fee. And pay invoices that you owe within the required time (usually 30 days or less) to keep vendors happy and build and maintain good credit.
5. Prepare for upcoming or unplanned financial needs.
Do you have plans to expand your inventory, add a new location, increase staff, or purchase equipment this year? Do you have enough working capital on hand to cover you through slow periods or setbacks?
Review your projections (see #7) to see if you’ll need additional money to grow. Prepare now for a loan by contacting Excelsior Growth Fund and let us help you find the funding that’s best for your business needs.
6. Review your tax strategy.
Now that the rush of filing season is over, schedule a meeting with your accountant to review 2016 filings and find additional deductions, plan purchases and learn ways to optimize your tax strategy this year. Here are some great tax planning tips that you can implement any time of the year, and your accountant may have even more.
7. Organize your backup systems.
Even though your day-to-day financial management is done online, a paper trail is still essential. Whether you keep the hard copies of receipts and statements or scan them to store online is up to you – just be sure to do one (or both) regularly.
Know how to create accurate financial projections and cash flow statements and learn how to read them. You should also know how to analyze your business’s financial performance using simple formulas that can identify potential issues quickly.
For all business expenses, keep original vendor invoices or other proof that shows what the purchases were for and always get receipts, especially when paying in cash. Copies of checks that paid for expenses or credit card statements that show purchases aren’t enough for the IRS.
And because you have to save your receipts for 3-7 years (ask your accountant what time period applies to your specific business expenses), store your records securely in fireproof and waterproof files. It’s a good idea to regularly create backups of your digital files, even if the bookkeeping software program you use does, too.
8. Enjoy being in control of your business!
By practicing good financial management habits, such as keeping accurate books, you not only gain control of your business financials, but you also gain clarity on how you’re performing. This information will help you make informed business decisions that will ultimately have a positive impact on your bottom line.
Interested in having a business advisor walk you through the bookkeeping process?
About Excelsior Growth Fund
Excelsior Growth Fund (EGF) helps businesses in New Jersey, New York and Pennsylvania grow by providing streamlined access to business loans and advisory services. EGF’s signature product, the EGF SmartLoan™, provides up to $100,000 in fast, transparent, and affordable financing through a secure online platform. Larger loans up to $500,000 are also available. EGF is a nonprofit organization and is certified by U.S. Department of Treasury as a Community Development Financial Institution (CDFI). Learn more at www.excelsiorgrowthfund.org.