As a small business owner and Wedding Photographer (a.k.a. artist), it is probably a good bet that bookkeeping isn’t your cup of tea. On the other hand, some people love bookkeeping (like me). Whatever way you look at it, it’s a necessary component of running a successful business. Good bookkeeping practices depend partly on the bookkeeping system you’ve set up. I’m talking more than software or the lack of it. The method of data compilation for your business records, regardless of whether it is manual or computerized, is the BACKBONE of every small business, whether YOU know it or not.
- Always keep your business finances separate from your personal finances.
- Don’t give the tax auditor a reason to audit both.
- Learn to pay yourself first and run your business on the remaining cash. By this I mean setup an automatic payment to your personal account twice a month (1st & 15th or 10th & 25th) like a regular pay cheque.
- Whenever possible, do not go into debt to run your business.
- Run your business on the existing cash flow it generates after you have withdrawn what you need to meet your personal needs. When calculating your cash flow, do not include funds collected in trust for the government.
- Not enough cash flow to cover expenses? Figure out where to cut your expenses and consider not offering credit to your customers because you are not a bank. Let your customers pay in advance and/or by PayPal, Square or a similar solution that accepts credit cards.
- Consider implementing all or part of Mike Michalowicz’s Profit First system if you are serious about running a profitable business.
- File all your tax compliance reports on time to avoid penalties, even if you can’t pay the amount owing. However if you begin the habit of putting money aside in a separate account to pay your taxes, you will never have this problem. Start today. Put a minimum of 15% of all cash received by your business into a separate account. I recommend this account be at a different bank than your current business and personal accounts. I like to use one of the no service fee online banks for this like Ally, President’s Choice Financial or Tangerine.
- Remember that tax collected on sales and payroll source deductions are amounts collected in trust for the government. It is not your money to spend. If you don’t have the self discipline to not touch these trust funds, send the money every week, month or quarter … whatever time period removes your temptation and starts you on the path of never getting out of debt.
- Keep organized …
- Develop a method for handling all your paperwork that matches your work style. Bookkeeping-Essentials.com has a lot of different options and suggestions on paper handling.
- Make an appointment with yourself to do your bookkeeping and enter your data in batches. Use accounting software.
- Actively manage your cash flow.
- Review your bank statement monthly and learn how to read your financial reports.
- Audit proof your records.
- Keep all your receipts, no matter how small the amount and make sure they are legible.
- Proof of purchase AND proof of payments are required. Receipts you must keep include debit receipts and credit card receipts as well as bills, invoices and detailed till receipts.
- Deposit all your business cash flowing into the business bank account … so you can prove what was income (taxable) and what was contributions or loan proceeds (not taxable).
- Keep a business journal to diarize your logic for your business ventures. It will help show you incurred the expenses with the expectation of profit.
Because the GOAL is to have a life outside your business … not to be in business to work every day … but to build business value. Isn’t that what you really had in mind when you started on this path of entrepreneurship?
About the Author:
Laura Kenway CPB BComm is the sole proprietor of Lakeshore Bookkeeping Services. She enjoys working virtually with start-up businesses in B.C. and Alberta. As the publisher of Bookkeeping Essentials.com, home based bookkeepers and business owners who do their own books have access to a free, practical and relevant resource. This Small Business Accounting Guide provides a simple, useful, basic resource on the numbers side of running your business. A series of informal chats helps small business owners understand essential practices and how to audit proof their bookkeeping records. Visit Laura’s website for both Canadian and U.S. Bookkeeping tips at www.bookkeeping-essentials.com
There is a difference between information and advice. The information provided in this post or on my site should not be construed as advice.