Did you know 64% of small and medium business owners manage their books themselves? If you’re one of them, you know how vital it is to keep your financial house in order. But even if you’re comfortable managing your books, there’s always room to sharpen your skills and pick up some tips to make your life easier. That’s why we’ve compiled the 8 best practices for bookkeeping every small business owner needs to know!
What is bookkeeping for startups?
At its core, bookkeeping is all about keeping track of your business's money. It’s the process of recording every dollar that comes in and goes out, from sales and revenue to expenses and payroll. While it sounds simple, good bookkeeping is the foundation that supports your business’s financial health and growth.
Best bookkeeping practices for healthy financials
Because bookkeeping is the base of accounting for any small business, it’s important to know the best bookkeeping practices. Here are 8 top bookkeeping tips for small business expense tracking, straight from industry experts:
1. Pick an accounting method and stick to it
One of the most critical aspects of bookkeeping is the accounting method you choose. The two accounting methods— cash basis and accrual — decide the way your bookkeeper records each financial transaction. Ultimately, both methods also impact how much tax you pay!
Therefore, you should pick the accounting method that best fits your business objectives and operations, and stick to it so that your bookkeeping remains consistent.
2. Open a business bank account
Running your business on purely cash transactions? You might want to rethink that. If you want your business to grow and prosper, you’ll need a business bank account— and we have several reasons why.
Having a business bank account saves you from the legal hassle of using your personal bank account for business transactions, helps you streamline every financial transaction through one account, and keeps an accurate log of the cash flow.
So, when you’re picking a bank to open your business bank account with, consider the following factors:
- What are their banking fees? The lower, the better.
- What transaction limits do they implement? Do they align with your expected cash flow? Are they flexible in case your business grows in the future?
- How secure are they in terms of financial transactions?
- Do they offer robust online and mobile banking services?
- Is their customer support reliable?
3. Set up your accounting software
Gone are the days of shoeboxes full of receipts and manual ledgers. Today, using good accounting software is non-negotiable. Tools like QuickBooks are highly regarded and come with features that simplify bookkeeping tasks and generate reports. But they will make you do all the recording manually!
That’s where you’ll need to save time with automated receipt tracking software like Receiptor AI. Built to be the best OCR software to scan and extract information from paper receipts, it quickly automates receipt scanning on the go from email and WhatsApp. But that’s not all. Receiptor’s ability to give you smart insights also makes it the best LLM software for your bookkeeping needs.
4. Connect a payment collection system
Managing your cash flow effectively means making it easy for clients to pay you. By connecting a payment collection system directly to your accounting software, you’ll automate data entry and reduce human error. This also ensures that every transaction is recorded correctly without you needing to do it manually.
5. Set up a payroll system
Payroll is an area where you can’t afford to cut corners. It’s not just about paying your people on time but also about correctly handling taxes and deductions. There are plenty of payroll services and software options out there that can integrate with your main accounting platform, making it easier to track and record payroll expenses.
6. Begin regular bank reconciliation
Reconciliation might sound tedious, but it’s one of the most important tasks you’ll do. This process involves comparing your business records with your bank statements to make sure everything matches. It helps catch errors like duplicate charges or forgotten transactions. Doing this at least once a month will keep your books accurate and save you a headache later.
Pro tip: Use receipt scanning apps and receipt management tools to ensure all your expenses are accounted for before you start reconciling.
7. Build key reports
Financial reports aren’t just for your accountant or the end of the fiscal year. They’re essential for keeping an eye on your business’s health. The three key reports every business needs are:
- Income statement
- Cash flow statement
- Balance sheet
When you regularly review these reports, you can easily spot trends, prepare for slower months, and identify where you need to cut costs or invest more. With Receiptor AI, you get automated receipt tracking and the ability to turn them into financial reports, empowering you to take charge of your business finances!
8. Establish a company expense policy
As your business grows, so will your expenses. In fact, they might grow to the point that you simply can’t reconcile them at the end of the day manually. In that case, you’ll want to create a company expense policy.
A company expense policy outlines what types of expenses are reimbursable and how employees should submit expense reports. This policy can help to reduce unnecessary expenses and ensure that all expenses are properly documented.
What is the difference between accounting and bookkeeping?
If you don’t have an accounting background, you might be using bookkeeping and accounting as an interchangeable term. But they’re quite different from one another. Here’s a simple breakdown of the main differences between accounting and bookkeeping:
Bookkeeping | Accounting |
|---|---|
| Focuses on recording financial transactions daily | Interprets, analyzes, and summarizes financial data to make strategic decisions |
| Handles basic tasks like recording invoices, payments, and expenses | Involves more complex tasks like preparing financial statements, tax planning, and financial forecasting |
| Requires basic math and record-keeping skills | Requires advanced knowledge of accounting principles, financial analysis, and tax laws |
| Provides data for decision-making but doesn't offer insights | Analyzes financial data to provide insights and recommendations for better decision-making |
Final thoughts
Bookkeeping doesn’t have to be a burden if you approach it with the right tools and practices. By following these eight tips, you’ll stay organized, improve your financial health, and be ready for whatever the year throws your way. The more you automate and streamline your bookkeeping, the more time you’ll have to focus on growing your business.
