7 Bookkeeping Practices Every Business Should Implement

Bookkeeping is one of the most fundamental activities of a business. It’s the job of recording all financial transactions within your business. Without bookkeeping you won’t be aware of your financial position.

It’s essential to build a consistent bookkeeping practice so that you can avoid monetary issues and use your financial reserves efficiently to grow your company. With that being said, do you know how to build basic bookkeeping practices? If you don’t, we’re here to help. In this article, we list out seven essential bookkeeping best practices every business should implement.

1. Separate personal and business finances

The first bookkeeping practice is related to business finance management. Co-mingling expenses for personal and business purposes leads to many issues in the future for a business. Therefore, for your business’s sake, you should establish a clear distinction between your personal and corporate accounts.

The simplest approach would be to get a business debit card or a credit card. Both make it easy to track your business transactions. Details of any transaction are stored on the e-banking app which you can access anywhere at any time. 

Now that you know how separating finances helps you manage your business better, it’s time to inform other people involved in your business too. Ensure your employees aren’t buying things for personal use with business funds. If funds aren’t accurately allocated it will lead to cash flow issues as well as tax filing and auditing complications.

2. Determine which accounting method to use

Another bookkeeping practice is to choose which accounting method your company will use to record transactions. There are two standard systems of accounting: cash accounting and accrual accounting.

Cash accounting is relatively simple and broadly utilized by small firms. Cash accounting records transactions only when money is spent or gained. Due to its simplicity, the cash accounting method is also used by many people to manage their personal finances.

On the other hand, under the accrual method, transactions are recorded when they are incurred rather than awaiting payment. This means a purchase or expense is recorded as a transaction even though the funds haven’t been received or bills haven’t been paid immediately.

3. Establish cash controls

Cash controls refer to all cash management policies and procedures within your organization. Many of the financial hazards associated with running a business (such as inaccurate payments, theft, and fraud), can be mitigated by implementing procedures that maintain control over cash flow.

There are many examples of best bookkeeping practices which you can adopt to enhance the management of a company’s funds, including reconciling cash receipts to deposits and the general ledger, following up on collections of returned checks, or preparing cash flow forecasts. 

4. Keep track of sales

Bookkeeping is the recording of all financial transactions involving your business, and it goes without saying that sales receipts are the most important of all financial documents because they allow businesses to gain visibility into their performance, to identify whether they’re doing well and whether you have to adjust any strategies.

It’s essential to keep track of sales receipts because you’ll need them to calculate your business’s income. Your income reveals the profits or losses you make while operating your business. This data helps you make better business decisions, ranging from day-to-day purchases to long-term expansion.

5. Keep track of expenses

Bookkeeping isn’t only about the recording of sales, but also expenses. Expenses are a necessary part of any business. If you don’t keep track of your expenses, chances are you’re likely to run out of funds, or worse, you may get deep in debt.

Expenses turn out to be more tricky than one might think. People often assume expenses only include payments for office rent, utilities, loan repayments, or such. But business expenses are much broader than that. They could be anything that costs to run your business and are categorized into three groups: fixed, variable, and periodic expenses. Knowing which category each of your expenses falls into will help you manage them better.

Read also: 5 Tips to Control Your Business’ Expenses

6. Review financial data monthly

It’s critical to close the books on all financial transactions for the current month before moving on to the next. When you review transactions on a monthly basis, you’ll catch issues early and fix them quickly before they leak over into the next month. 

Other than that, reviewing financial data monthly helps a lot for your decision-making. By looking at the financial data you can determine whether your goals were achieved. Goals are an important part of running a successful business. 

For example, if your last month’s goal for sales revenue was $200,000 and you successfully achieved it, your business seems to be on the right track. On the other hand, if you fail to achieve your goals, you can quickly adjust your strategies to get everything back on track. 

7. Make a choice: professional bookkeeper or bookkeeping software? 

Many small business owners and managers take on the businesses’ bookkeeping management to save costs. As a result, the success of this task lies in their experience. But most of the time, their knowledge and experience are insufficient to handle this intricate job. 

If you ever find yourself in this awkward situation, there are two options: turn to a professional bookkeeper or adopt a bookkeeping software. Each of these solutions has its own advantages and disadvantages. Depending on your business size, model, and finance, you can determine which option fits best with you.

How can a professional bookkeeper help?

Bookkeepers are more experienced in handling records which could prevent errors that result in penalties on filing documents in the future. A bookkeeper provides you with a fresh perspective on your business, such as suggestions on managing your budget better and running your company.

However, the price of hiring a professional bookkeeper can break your bank. The average salary of a bookkeeper is $45,088, which means you have to pay them more than $3,000 per month. Unless you’re a big firm, whether to hire a bookkeeper should involve  serious consideration.

How can bookkeeping software help?

Bookkeeping management software are a better solution for small businesses, as they can do the same job as a bookkeeper and cost only a fraction of a bookkeeper’s salary. There are many names that you’ve always heard of such as  QuickBooks, Xero, or Shoeboxed. Bookkeeping management software developed by Shoeboxed is an ideal tool for small business owners. 

With Shoeboxed, you can turn your receipts into data, organize them, make reports and analyze your current financial position at any time and anywhere. And Shoeboxed only costs from $18 to $54, depending on your business size. To get the most out of your bookkeeping management, get started with Shoeboxed for free!

The bottom line

Proper bookkeeping practice drives your company to success. It allows you to stay on top of your business transactions. What’s more, it streamlines your financial data management; hence, you can stay focused on growing your business. 

Real Estate Bookkeeping: A Basic Guide

Many people from different walks of life have strived to buy or invest in properties. However, the real estate industry has witnessed some of the major crises, leaving many people nothing but significant damage to their assets. 

The most destructive one was the collapse of the U.S. housing market due to the financial crisis in 2008. After almost a decade later, when the real estate industry has gradually recovered, and people have started to feel a sense of stability, there comes another wave hitting the industry once again – the Corona pandemic. 

Hence, understanding the driving factors that change the price of real estate is helpful in improving your real estate bookkeeping. You can make better financial analyses and more rational decision-making for your properties. 

Real estate bookkeeping guide 

What can impact the growth of real estate?

Demography

The baby boomers born from 1946 to 1960 have been ending their working careers. The number of people heading to retirement will then go up dramatically. These people tend to sell their houses after that, resulting in an ample supply and lack of demand in the housing industry. The price of your properties might go down eventually.

Moreover, the U.S. will have a smaller workforce, and production will decrease. As a result, fewer people invest in the market, foresaying another financial disaster in the near future.  

Technology

It goes without saying that technology has constantly been growing in recent years. The advancement of blockchain technology has transformed the whole real estate industry. Instead of conducting offline transactions, blockchain has allowed us to trade real estate on digital platforms in many ways. This can lead to a cost down due to eliminating intermediates, saving a lot of dollars, and changing the properties’ price. 

Optimistic forecast by analysts

Analysts place an essential role in shaping investors’ perception of real estate and changing their decision-making. One of the most valuable things we can withdraw from the financial crisis in 2008 is not to always trust the analysts because they also make mistakes. They were confident that investing in mortgages was the best of the best, with nearly no risks involved and high returns. The credit rating agencies also overrated the mortgages with poor credits, making the investors throw loads of their money into the housing market in the U.S. Then, when the housing bubbles popped, not only the investors but the whole economy had to suffer. 

Real estate is a very capital-intensive industry. Every wrong decision would cost you thousands to millions of dollars. Therefore, you must equip yourself with fundamental financial knowledge to predict the changes in real estate, adopt rational thinking, and make a more accurate decision. Let’s start with the basics: bookkeeping. 

What is bookkeeping? 

Bookkeeping is the process of recording all the transactions. In simpler terms, it means that whenever you purchase, sell, borrow or loan something, basically everything monetary, you have to jot down the details, such as the name of the transaction, the date, or the amount of traded money. The products of bookkeeping are financial statements. These statements are then analyzed to understand your financial performance and plan the next moves. 

Let’s look at this example: You have $100,000. You borrow a bank $400,000, and you then buy a $500,000 house. 

How many transactions are there in this example?

The answer is two: transactions between you and the bank and between you and the house-seller. In reality, the trades are more complicated with more accounts that you need to take into more consideration. 

Why do you need efficient real estate bookkeeping? 

Easy reporting to the externals

The creditors (such as banks) or the IRS need to view and get updated about your current net worth and gains from your properties to quantify appropriate interest rates or tax rates. All the financial statements, including the balance sheet, income state, or cash flow statements, demonstrate all the value of your real estate. 

Better Decision-Making

The bookkeeping provides you with organized financial statements, helping you with more straightforward at-a-glance checking. An efficient bookkeeping process can lead to accurate information, assisting you in better analyzing your current net worth and real estate performance. Besides understanding current financial capabilities, bookkeeping makes you review past transactions and figure out what works and what does not. Therefore, you can have better planning for the next moves in the future. 

Tax preparation

You have to pay taxes on your properties based on your financial statements withdrawn from the bookkeeping process. Real estate is taxed at ordinary rates, but fortunately, with deductions.

You need to file a tax return every year, whether you are just an individual or a business owner. Having bookkeeping functioning in place can save you a lot of time and effort. But it is not an easy task for everyone. Millions of business owners have to scramble all-around their offices to track down all the bills and record the transactions. Does it sound familiar to you? If so, don’t worry. You can outsource to a third party to record your expenses. Shoeboxed is a very reliable service, using both A.I. and specialists to track your bills, helping you get rid of paper receipts in your desk drawers. All you need to do is scan your receipts, then you can get access to organized documents containing accurate data for your at-a-glance expense tracking. Moreover, the bills are kept in “digital forms” on the cloud for 3 to 5 years with Shoeboxed, so you don’t have to be afraid of missing paper bills anymore. 

Real estate has become a symbol of one’s affluence and power, especially in the United States. If you get married, the first thing that may come up in your mind is buying an ideal and cozy house where you can raise your kids. And if you are a business owner, investing in real estate is the first step to grow your business. Last but not least, if you are a financial investor, real estate is a good bet, as it can bring you passive income, freeing yourself from exhausting labor hours, and gives you a lot of tax advantages. Prepare yourself with sufficient financial knowledge to make the best out of your investment in those properties. 

Bookkeeping For Entrepreneurs Best Practices

As an entrepreneur, to be honest, is good bookkeeping your priority when running your business? While it is not the most exciting work, organizing records and tracking transactions are essential parts of every business, however small it is. 

What should entrepreneurs know about bookkeeping? Are there simple tips on proper bookkeeping that business owners can follow? 

This article will help you to answer these questions.

Bookkeeping for entrepreneurs: A basic guide

1. Choose a business model

Before having your first books, as an entrepreneur, you should register your business and select a suitable business model that fits your needs. Depending on what you choose, the requirements for filing tax may be different and you don’t want to mess around by being ignorant. Many entrepreneurs start off as the only owners of their companies. Apart from the easy registration procedure, sole proprietorship also allows them to pay business taxes as part of their personal income tax. For those who would like a clear boundary between them and their business to avoid the risk of company debts, a limited liability company or a corporation can provide better legal protection. 

Although in these cases, separate tax filing tends to be a complicated process which makes bookkeeping more demanding with multiple financial documents to prepare, the tax benefits that they offer, including lower tax rates, are among the reasons for their popularity with entrepreneurs.

2. Adopt a suitable accounting and bookkeeping method

For aspiring entrepreneurs who are new to managing finances, taking on accounting and bookkeeping is quite a problematic quest, even to the bravest of all. They need a reliable map that guides them through this adventure. In other words, we can say that finding out an exemplary method for each task and being consistent with it is highly important. When it comes to accounting, there are two options to choose from:

  • Cash-basis accounting: To put it simply, under the cash accounting method, you record what you receive and pay right at the moment the money exchange occurs. It is quite straightforward, so even beginners can try this method to keep track of their business revenue and expenses.
  • Accrual-basis accounting: The timing of recognizing revenue and expenses in the accrual accounting method is not as immediate as in cash basis accounting. It documents revenue and expenses when transactions occur even if cash hasn’t been paid out yet. Since accounting for items such as unearned revenue and prepaid expenses is involved, many entrepreneurs find the accrual method helpful in providing an accurate portrait of a company’s profitability in the long term.

After deciding on an accounting system to stick to, you will also need to ensure you are doing proper bookkeeping. Tracking all business transactions by keeping every receipt and invoice in order is not easy work. But without it, you won’t be able to see the income and expenses of your business, let alone make informed decisions on financial matters. Most solo entrepreneurs may have the first-hand experience of becoming their own bookkeepers, and that’s certainly beneficial in several ways when the business owners acquire some bookkeeping knowledge. However, as their business grows and the bookkeeping workload increases, at some point, they won’t be able to manage it by themselves. 

The best possible option would be to have a full-time bookkeeper. Hiring a part-timer may cut down some fees, but nothing compares to having someone dedicated to the job and who knows your business. If you wish to integrate technology into accounting, it’s a good time to opt for a cloud-based solution. With a variety of accounting services available nowadays that help you to manage bookkeeping online by, for example, linking to your business bank account, you can save so much time on tracking transactions.

3. Track your expenses

One of the basics of bookkeeping is to track all business expenses. It involves developing a filing system for your receipts and financial documents, ranging from tax returns, bank and credit card statements, office bills (utilities, internet, phones, supplies, etc.) to receipts from travel, travel, and business meals. Keeping all that paperwork in place, either by storing its physical or digital copies takes a lot of effort as it is piling up every day. It will be too late to start preparing these records only when the tax season comes near. So ideally, you should organize everything regularly.

4. Monitor payment

As there are many payment options to meet the demand of both payers and payees, entrepreneurs need to develop flexible tracking methods to maintain good bookkeeping. If you are just used to paying by checks and cash and accepting paper receipts, you may need to consider other payment ideas to broaden your clients’ choices.

Credit card and debit card payments are becoming the norm, and we are also increasingly familiar with online payment. Managing all transactions manually will no longer suffice in this digital era, so businesses everywhere are going paperless and automating their bookkeeping process.

5. Know your tax obligations

As mentioned in the first section, tax requirements for each type of business vary based on how you register it. In fact, tax obligations also depend on other factors, such as different state regulations and characteristics of specific industries. Here are some typical taxes that most entrepreneurs will need to cover:

  • Self-employment tax:  If you start out as your own boss, this tax is obligatory because you will need it to pay your medicare and social security fees.
  • Employment tax: Once you become an employer, you are responsible for covering your employees’ Medicare and social security expenses through your contribution to employment tax.
  • Income tax: You can file your business tax as part of your personal income taxes if your company is a sole proprietorship. For complex entities like a corporation, business income tax is filed separately. A limited liability company provides an in-between option where you can choose to pay taxes either as your own or as a business cost.
  • Sales tax:  To collect the accurate amount of sales tax and submit it to the government, you need to refer to how your state of location regulates it. As a rule, sales tax is charged to the end-user of a good or service, so if your business is only part of the manufacturing chain, make sure to obtain a resale certificate to avoid paying the sales tax.

Why bookkeeping for entrepreneurs is important to know? 

  1. To manage budgets

Bookkeeping lets you know where and how much money is coming into or going out of your business. By keeping records of revenue and expenses, entrepreneurs can understand the financial situation of their business and look for ways to improve its overall performance. Specifically, business owners can evaluate how efficiently budgets are allocated at that moment based on past records, invest more in activities that are working well and make necessary changes to those that are not as profitable. Managing budgets and financial planning becomes easier when you have a functional accounting and bookkeeping system in place.

2. To prepare better financial reports

No one can underestimate the importance of financial statements in the business field. Accurate reports can tell your company’s financial health and play a crucial role in the decision-making process that dramatically impacts its growth. If there is a key to creating good reports, it must be the accuracy and reliability of the input data. This is when bookkeeping comes into play as its records contain precious raw data, which is then consolidated and analyzed in financial reports. Entrepreneurs will have to work with the following documents frequently, and even when they are not always supposed to write such statements, they must know how these are created and what bookkeeping records they use.

  • Income statement: The income statement reports the revenue and expenses of a business over a period of time, based on which you can see whether the company is making a profit or how much loss it is generating.
  • Balance sheet: The balance sheet shows details about a business’s assets, liabilities, and equity at a specific time. You will need this report to know whether what your company owns and owes are on balance.
  • Cash flow statement:  A cash flow statement gives you information about the cash and cash equivalents coming into and going out of your business. The cash flow may fluctuate daily, so it requires constant updates on everyday transactions.

3. To get ready for tax season

Keeping all the records organized will make filing your taxes so much easier. With every earning and expense accounted for, the preparations for tax season will go smoothly, and entrepreneurs can rest assured that they are compliant and ready for the visit of the IRS anytime.

Bookkeeping for entrepreneurs: Amazing tips!

We’ve combined some of the most amazing tips on bookkeeping for you right here! 

  1. Create a separate business account

To do proper bookkeeping, you may need to consider opening a business bank account different from your own, which helps you legally separate your business and personal finances. Even if your company is incorporated and you can pay business expenses with your personal account, this adds more complications to bookkeeping and claiming tax deductions. When the line between personal and business data is blurred, it won’t be easy to track the progress of your business and plan for the future. It is expert advice that you should also apply for a business credit card for the same reasons.

  1. Keep all receipts

Not only receipts but also invoices and proofs of all payments are needed to back up the validity of your tax deduction, which helps you reduce the amount of taxable business income. Providing such evidence is not a problem for credit card purchases because you can get receipts and bank statements every month as supporting documents. With cash expenses, the conventional way would be manually recording them in a notebook or spreadsheet while keeping the paper receipts for rechecks. Or you may wish to use an accounting app, snap photos of your bills, and store them safely in the cloud-like what Shoeboxed mobile app offers. Shoeboxed also helps you keep physical copies of crucial documents at your request.

  1. Digitize your financial data

The most apparent advantage of going paperless is probably saving space in your office. A digital bookkeeping system allows entrepreneurs to work more effectively with less paper to store and easily retrievable data. Since a growing number of businesses are now interested in this trend, it may be too late if you persist in the old way and resist changes. However, there are some vital paper documents that you will need to retain for legal purposes. Hence, it is best to keep both physical and digital copies of such records as contracts and licenses.

  1. Pick the right tools

Not many entrepreneurs are trained as accountants, so there is no need to use an accounting system that requires expert-level knowledge to begin. Do some research and choose a program to fit your business needs and bookkeeping practices. Similarly, you should pick the software whose features are compatible with your current system. For example, Shoeboxed’s receipt scanning and expense tracking services are designed to work well with major accounting programs like QuickBooks and Xero. The combination of these wonderful tools will help you finish the daunting work of data entry, categorization, and organization in no time!

  1. Take advantage of professional help

Although entrepreneurs can make do with bookkeeping and accounting to some extent, most businesses will need someone committed to the job if they are to thrive. Find a professional accountant who you can trust and let them be your best business partners. Learn from their specialized knowledge and experience to facilitate your plans. It is not always about financial reports and tax prep; a good accountant can offer insight into the business that helps to guide its development and success.

Conclusion

People say that a successful business should make a lot of money, but that is incomplete. A business can’t grow unless it manages the money earned well. More focus must be placed on adopting good bookkeeping practices. This is not a duty of only bookkeepers and accountants – entrepreneurs should be part of it too, for the sake of their company.