As professional bookkeepers and accountants, Sherman Oaks Accounting & Bookkeeping powered by One Source Services has worked with folks from all sorts of businesses. We like to think that we’ve seen it all!
Most of the folks we’ve worked with have had at least one commonality: the struggle to maintain work/life balance, especially entrepreneurs with lots of customers but not enough time to track their money.
These business owners often complain about falling behind on expenses as receipts pile up around them. Sometimes they aren’t really sure which money belongs to their business and which money belongs to them personally.
This often leads to a time-consuming cycle of frantically trying to straighten out the books when they run out of money, calculating how much of a loan they can take from the business to pay for personal expenses or the other way around.
Sherman Oaks Accounting & Bookkeeping powered by One Source services has helped many entrepreneurs STOP this time-sucking cycle and simplify their accounting processes starting with 4 basic steps:
1. Implement an Online Accounting System
A good business accounting system will simplify accounting right from the start with common-sense automation; it’s one of the most important things you can do to break the time-sucking cycle.
We are sorry to say that Excel, GoogleDocs, and shoeboxes are not good business accounting systems. On the other hand, QuickBooks Online (our system-of-choice) and Xero are excellent low-cost solutions.
Storing your books online keeps your accounting securely accessible to authorized personnel when they need it from any Internet connection. Some programs even have mobile device compatibility.
As your business grows and you ask investors and accountants for help, they will request financial statements to determine your business’s situation. Good business accounting software will easily generate complete financial statements including a Balance Sheet, Income Statement, Cash Flow Statement, and Profit & Loss Statement.
Meaningful financial statements are extremely useful to you, as well. They can plot a business’s growth and identify areas of opportunity.
2. Keep Business and Personal Bank Accounts Separate
One of the most common mistakes we see is not separating business from personal finances. How can a person possibly interpret business performance among such tangled-up accounting?
Therefore, it’s important to have a designated bank account for your business and a separate one for personal funds.
The business account should be immediately integrated into your accounting system (QuickBooks Online, for example) so you can see your financial performance at-a-glance, pay bills, and even manage payroll all in one place.
All business revenues should be consistently deposited into the business account, and all business expenses should be paid out of it.
Use a debit card for incidental business purchases to make it even easier to monitor business expenses out of the account.
If you must pay for a business expense out of your personal account, then you must also file a business expense report for each purchase and pay yourself back.
The same applies to deposits; if your business is not turning a profit yet, then you may fund it with personal checks to the business account (but still keep the accounts separate).
This will allow you to easily track your personal loans or equity contributions to the business.
3. Open A Business Credit Card
You might consider getting a business credit card to be used ONLY for business purposes, as well. You can apply for a business card using your own credit if your business doesn’t have credit history yet.
The ideal business credit card will have low or no fees and some kind of valuable cash-back incentive that would benefit your business. The card may initially come with a low limit, but the limit (and your business’s credit score) will gradually increase as you make timely payments.
Just like your bank account, your credit card should be integrated into your accounting software (such as QuickBooks Online) to simplify expense monitoring and account reconciliation.
Should someone nefarious get a hold of your account information, a good accounting system can often help identify credit card fraud sooner, as well.
4. Balance The Checkbook (so to speak)
Although an accounting system will automate the majority of your bookkeeping, someone still has to occasionally classify transactions and reconcile accounts.
Weekly Check-in: An authorized person should review transactions in the accounting system once a week. Some entrepreneurs do this themselves, while many hire a professional bookkeeper or accountant like Sherman Oaks Accounting & Bookkeeping powered by One Source Services to do it.
Whichever you choose, every week each transaction must be correctly categorized once it’s been confirmed as an authorized expenditure.
Even though QuickBooks Online can automatically categorize transactions according to your specifications, someone must still perform an audit. For example, the system might incorrectly categorize a Pasta Garden charge as “Office Supplies” when it should have been “Meals & Entertainment.”
Monthly Reconciliation: All accounts should be fully reconciled every month. This means that for each account, the account balance at the beginning of the month must match the account balance at the end of the month after all deposits and expenses have been accounted for.
Programs like QuickBooks Online have built-in processes that significantly simplify account reconciliation. Still, many business owners dread this important accounting task and prefer to hire a professional bookkeeper like Sherman Oaks Accounting & Bookkeeping powered by One Source Services to do it.
Simply changing how you manage your finances can help you stay more productive. By keeping business and personal finances separate, letting your accounting system do the work for you, checking-in once a week, and then reconciling once a month, a lot of lost time can be reinvested in other priorities like business growth.
An entrepreneur should always have a clear picture of their past, present, and future business performance. Without good accounting, your business story is undocumented.
To succeed in business, accurate and compliant accounting is not a luxury; it’s a necessity!