Top 10 Bookkeeping Best Practices for Small Business Success

Date Published: 05/11/2022
Published By: Tower Marketing
Topic: Insights

Woman using calculator for bookkeeping.

Sound bookkeeping is one of the most critical aspects of running a small business.

By ensuring that your finances are in good order, you can make more informed decisions regarding your company’s growth and profitability. When your books are neglected, however, you risk jeopardizing the overall financial health and future of your business.

In order to maintain a successful small business, you have to establish good bookkeeping habits. But what if you’re not sure where to start? We’ve compiled ten bookkeeping best practices below to help you manage your business finances effectively.

Bookkeeping Best Practices for Small Businesses

To avoid potential issues like fraud, you must make sure that your financial information is accurate and secure, which requires precise bookkeeping. If you struggle to keep your accounts in order, be sure to follow these ten best bookkeeping practices for small businesses.

1. Keeping Business Finances Separate

Separating personal vs. business expenses is one of the first steps that you should take after incorporating your business. As the owner, using your personal credit card for business expenses (or vice versa) may not seem like a big deal, but it actually creates an unclear picture of your finances and can cause issues in the long run.

Keeping your business funds completely separate benefits you in multiple ways, including:

  • Making it easier to track your cash flow.
  • Helping you maintain accurate records.
  • Limiting your personal liability for any business-related debts or problems.
  • Improving the accuracy of your performance forecasting.
  • Reducing the risk of triggering an IRS audit.
  • Developing business credit.

So, if you haven’t already, open a separate bank account for your business.

2. Tracking All Expenses

Individual transactions can add up quickly. That’s why it’s so crucial to keep thorough records of all expenses, which requires saving receipts and credit card statements on a continual basis.

Many small business owners track their expenses simply using a basic spreadsheet like Excel. If this is the route you take, be sure to include the following information in your sheet:

  • Name of biller/supplier
  • Account number
  • Expense type
  • Amount owed
  • Invoice date
  • Date paid

You can also use advanced bookkeeping software programs to keep track of both one-off and recurring expenses without expending so much of your own time. We strongly recommend using QuickBooks Online to organize your business expenses effortlessly.

3. Managing Accounts Receivable

Poor management of accounts receivable (AR) can lead to costly consequences for your business, like accruing high-interest debt. Fortunately, there are processes that you can put into place to limit outstanding fees.

The following strategies can help minimize any issues related to AR:

  • Ensuring that your billing is accurate
  • Sending invoices promptly
  • Setting clear credit policies
  • Requiring a portion of payment upfront
  • Following up with clients on the day that funds are due
  • Notifying clients when accounts are overdue
  • Immediately applying payments to the proper invoice once received

4. Maintaining Accurate & Clean Records

Numerous aspects of your business rely on keeping accurate, up-to-date financial records. By not managing your documents properly, you risk complications with employees, lenders, investors, and even the IRS.

Whether you prefer to keep your records physically in files and ledgers or electronically, you should maintain the following:

  • Daily and monthly cash receipt summaries
  • Check disbursements
  • Business checkbooks
  • Employee payroll records
  • Depreciation worksheets

Using accounting software is the simplest and safest way to maintain your business records and ensure compliance with federal and state regulations.

5. Backing Up Financial Records

If you use a cloud-based accounting solution, then your data is securely stored and copied. However, if you opt for desktop bookkeeping software, be sure to back up your information regularly to keep it safe from physical threats and cyber-attacks.

Man comparing financial report data on laptop and mobile phone.

6. Establishing Internal Controls

Small businesses are more likely to experience accounting fraud than large corporations. To ensure the integrity of your financial records and deter fraud, you need to implement internal controls.

Segregating duties for employees who are involved in receiving or distributing funds is an essential internal control to have in place. This reduces the risk of fraudulent activity by making sure that no one person has complete control over your finances.

If you haven’t established internal controls for your business (or your current controls need to be adjusted), you should hire a risk advisory professional to help you develop a comprehensive set of processes.

7. Reviewing Financial Reports Monthly

As a small business owner, you should never be in the dark regarding your finances. Each month, set aside some time to review and evaluate financial reports, including your income statement, balance sheet, and statement of cash flows. Doing this will help you catch any irregularities and make better-informed business decisions.

8. Reconciling Bank Accounts & Classifying Transactions Regularly

Don’t let your bank transactions pile up. Doing this can cause more work for you in the long run when you’ll have to classify hundreds of accumulated transactions. Instead, get into the good bookkeeping habit of downloading and classifying your transactions regularly.

You should also reconcile your bank account frequently to ensure that your recorded transactions match those shown in your bank statement. Using accounting software can streamline this process, as most advanced programs have reconciliation and automatic transaction download features.

9. Using Accounting Software

While you should stay aware of your numbers, you shouldn’t be bogged down by them. Bookkeeping tasks can put a major strain on your time. So, automate what you can with bookkeeping software! These programs can handle some of the work for you so that you can focus on other aspects of your business.

10. Outsourcing Your Accounting

Poor bookkeeping processes and policies can cause major problems for your company. By outsourcing your accounting, you ensure that the tedious bookkeeping tasks are managed properly by trained professionals so you can redirect your energy to more creative and strategic pursuits.

Professional male speaking on the phone while working on his laptop.

Get Accounting Help from Powered by Centri

At Powered by Centri, our expert advisors use the best bookkeeping practices for small businesses to keep your finances in order. Let’s look at a few ways that our team can help you establish good bookkeeping habits.

Transactional & Reporting Support

Improve the efficiency of your company’s existing bookkeeping and accounting functions with our transactional services. Here are just a few tasks that your dedicated point person can assist with:

  • Managing accounts
  • Creating and posting recurring accounts receivable
  • Reviewing and analyzing financial statements
  • Creating monthly financial reports
  • Processing vendor payments

With an accounting expert just a phone call away, you’ll never have to work through complex bookkeeping tasks alone.

Bookkeeping Software Support

If you’re interested in cloud-based accounting solutions to simplify your bookkeeping processes, our team will help you choose the best tools for your business. We’ll also help you set up your online accounts, teach your staff how to leverage the technology, and offer ongoing tech support.

Risk Advisory & Internal Control Assessments

Establishing internal controls is a key part of an effective risk management strategy. Our risk advisory services can help you identify potential threats and develop actionable steps to mitigate them. We offer the following internal control and risk assessments:

Your risk advisor will review the results of each assessment with you, evaluate your current internal controls, and help you develop new ones to protect your financial information.

By adopting these ten bookkeeping best practices, you’ll set your business up for financial success. But you don’t have to handle it alone!

Need some accounting help? Consider outsourcing your bookkeeping to Powered by Centri! Sign up for a free consultation to get started today!