No one plans on their business being in the red. To say that “it just happens” is so wrong. It’s plain and simple a business’s numbers plummet into a deep red due to lack of good accounting and bookkeeping.
There are plenty of ways to avoid it though. Two top reasons businesses fail are due to poor accounting and the lack of a “cash cushion” when they would need it in an emergency to help them stay afloat or just break even.
Here are 10 ways to be sure to keep your books out of the red, and to help your small business stay in the air, not on the ground.
1. Advanced Planning. For EVERYTHING.
- If you’re going to need to get a new truck in the near future or maybe buy new computer equipment in a year or two, you need to mark it on the calendar and start allocating funds to save for those big purchases. These upgrades come up quick and if you’re not prepared, they don’t treat the wallet nicely.
- Understand what months have more volume versus the months that are slower, so that you can properly prepare your funds.
- Laying out expenses for business trips, important lunches, etc. in advance only benefits you.
2. Expense Tracking
- Have a credit card and account solely for your business.
- It will help you track your business spending. If you’re ever audited you have all the information you need in one place.
3. Recording Deposits the Right Way
- Make sure you're properly categorizing each deposit.
- One of the biggest mistakes owners do when recording deposits for their business is improperly categorizing them as income. No. Not every deposit is income, and if you’re classifying everything that way, then you’re just being taxed on money that you don’t even get to take home yourself.
4. Set Aside Tax Money Throughout the Year
- This only helps you. You will always be able to pay your taxes when they are due every quarter. Then you won’t have to just take from another already allocated fund within your business.
5. Always Check Your Invoices
- The best way to keep a close eye on your invoices is to specifically assign someone to track your billing out.
- You can work on a plan to put into action when people don’t pay on time that may include penalties.
- Understand that when customers pay late, it hurts your cash flow and may impact many different areas of your business.
6. Keep Personal and Business Finances Separate
- Completely different accounts, separate credit cards; keep everything separate.
- This makes it so much easier to track where you are spending specific money.
- Also saves you time and money from your personal account when it comes to tracking the expenses of your business.
7. Check Your Daily Records At Least Once per Month
- Make sure everything lines up accordingly.
- The best way to assure balance is to reconcile your accounts every single day when you first come in.
- This will help you know if you’re properly managing your funds on a daily basis rather than the end of the month, and where your business stands financially.
8. Not Interested in Reconciling Everyday? That’s Fine!
- Have a regulated time each week to just spend on your books.
- The same time every week to comb through every single part of your books, ensuring accuracy and proper fund availability.
9. Keep All Receipts
- Maintaining a record of every single purchase you make is a great way to track your spending.
- If you’re audited, it is a lot easier on you and your business by having all these documented transactions. This can be substituted with having a great bookkeeper but that is up to you if you hire someone.
10. The Most Important Tip of All: Accounting Software that Meets Your Business Needs
- You need to make sure that you have some sort of accounting software that will satisfy all the needs of your small business. It should work efficiently, productively, and be reliable, intelligent, and secure.
Haven’t found the right accounting/business solution yet for your business? Check out Osprey Accounting and get your own Live Bookkeeper plus an inside look into the future of the Accounting World!