The Small Business Guide to Bookkeeping and Invoicing

This is a guest post from Kristie Wright (see bio at the end) – thanks Kristie.

Accurate and concise bookkeeping is the backbone of any successful small business. This aspect of operation may seem tedious, but it’s crucial that you track your expenses and earnings in order to keep the entire system functioning smoothly!

Not only is bookkeeping necessary to remain compliant with tax laws, but it’s also an essential business practice to ensure a bottom-line-boosting ROI. Whether you’re doing your bookkeeping on your own, or you have a dedicated assistant for the job, knowing how to do your books properly will allow you to see exactly where your funds are going, and ensure that you never miss out on dollar-saving deductions.

Why You Should Learn Proper Bookkeeping

There are so many solid reasons to get a handle on your small business’s bookkeeping. The most important ones relate to:

  • Taxes. Your business needs to provide information about its losses and profits to the taxman. This data always needs to be correct and comprehensive if you aim to avoid getting hit with harsh penalties.
  • Cash flow. There’s no point building yourself a strong brand while failing to monitor your cash flow. You need to know where you’re spending your money to adjust your cash flow in any scenario.
  • Expenses. You can claim business expenses back to save your company money where it matters, but only if you keep proper records!
  • Growth and profit margins. Good bookkeeping is essential to determine the amount of profit your business makes. This will allow you to better gauge its progress and growth, and to make informed changes where necessary.

Strategies for Small Business Accounting

There are numerous ways of keeping track of your business’s books, and each has its own advantages. The three primary strategies to choose from are:

1. Hiring an Accounting Specialist

A professional accountant will probably be highly skilled in handling small business’ books, and can assist you in remaining compliant at every step of the way.

They’ll ensure that your accounts are always up to date, and they’ll have in-depth industry knowledge of what you can claim for expenses. They may add to your operational costs, but their expertise will be worth it.

2. DIY Bookkeeping Software

DIY accounting software is comprehensive and robust, offering all the features you need to manage your finances effectively.

You may, however, need some bookkeeping knowledge to use it, or have to undergo training to ensure you’re adept with its inner workings.

3. Fully Automated Accounting Software

Many small businesses use fully automated services to handle their accounting. They tend to require no contracts, paperwork or hourly fees, and give you immediate access to a CPA and a personal bookkeeper.

The caveat is that these options are more expensive than DIY software, although they might be worth the money if they’ll save you time and effort.

Common SME Bookkeeping Mistakes

If you want to handle your books properly, it’s important to avoid these common accounting pitfalls.

  • The first relates to your receipts. If they are sitting in a box on your shelf, your accounts have not been properly addressed. The best course of action to avoid this is to use proper bookkeeping principles from the start.
  • How do you handle your inventory? Your books may reflect inaccurate costs of goods and inventory values because of miscounts or even theft. Always keep meticulous records of your inventory and schedule regular inventory checks.
  • Then there are loan payments. You might not be accounting for your principal and interest loan portions correctly. Don’t categorize the whole payment as a simple lump-sum expense, but rather account for the principal and interest separately.
  • Unreconciled transactions can pose a major hassle for small businesses. All of your transactions need to be categorized, and you need to work chronologically to achieve this. Reconcile your transactions as often as possible so you don’t lose track of them.
  • Last, but not least, is payroll. Your income statements should reflect payroll at gross, but you may need to perform manual adjustments on bank statements or feeds to avoid your accounts reflecting the net. You’ll only be paying a net amount, not gross, so it can get tricky!

Handy Invoicing Tips for Your Business

It’s all very well having professional accounting templates or a bookkeeping system in place, but you need to ensure you get paid too! In any successful business, accounting systems and invoicing go hand in hand.

By keeping your accounting system up to date, you’ll be better equipped to draw up invoices for clients, and can ensure that you don’t fall behind on paperwork. Clear, concise records will tell you who owes what, and you can create invoices accordingly. If you don’t have a proper accounting system in place, your invoicing process will become a nightmare, and you’ll likely lose money along the way.

Additionally, implementing effective practices for your invoicing system can drastically improve your business management, including how your company is viewed by clients and customers. Doing so can speed up your payments, and perhaps even boost cash flow too!

Here are our top tips for small business invoicing.

Switch from paper invoices to online invoicing

It’s so simple to switch from outdated invoicing methods to modern ones like email invoicing. Invoicing software comes complete with attractive and professional templates that you can customize according to your brand.

Emailing invoices to clients saves you both money and time, and can speed up payment turnaround times too.

Simplify your invoice layout

Another benefit of using invoicing software is that the templates offered are neat and professional, and don’t require any design skills on your side. They are simple and uncluttered, making your invoices easy to read and to understand.

Adopt multiple payment methods

There are few better ways to speed up your invoice payments than by accepting more ways to get paid. Give your clients a variety of options to choose from, including EFT, wire transfers, eWallets and eChecks.

Formalize your payment policies

Guide your clients and encourage cooperation by creating a set of formal invoicing and payment policies.

These policies need to be written in contract or agreement form and offered to your clients so they’re aware of your requirements upfront. Don’t make the mistake of leaving this information out. Include details about upfront payments, payment plans, payment terms, payment methods, and how late fees will be applied.

Number your invoices

Using a proper numbering system can simplify your bookkeeping efforts and enable you and your clients to use your invoices as points of reference. Most online invoicing software does this for you automatically.

Don’t delay sending off invoices

You may be a busy business owner, but your cash flow should never be delayed as a result! The longer you wait to send off your invoices, the more likely your clients will move on from the job and further delay your payment.

Submit your invoices while the task is still fresh on their minds and you’re more likely to receive prompt payment.

By establishing proper bookkeeping and invoicing systems, you’ll be looking after your business’s financial health, and your profits should reflect this. Ka-ching! Here’s another worthwhile article on effective invoicing – How to Get Your Invoices Paid Quicker.

Kristie Wright is a freelance writer, covering topics on finance and business, mostly catering to small businesses owners. She brings years of experience to delivering content that inspires entrepreneurs to grow and maintain a healthy business.

Shawn Kinkade Kansas City Business Coach