How to start bookkeeping for your small business
When you’re just starting out as an entrepreneur, there’s a long and admittedly overwhelming number of things to do and learn.
Bookkeeping is one of the items on that list, and it’s a task that many new entrepreneurs dread or defer for a variety of reasons: they don’t get along with numbers, they think it’ll be tedious, and they have so many tasks to prioritize — many of which seem more appealing or urgent than keeping financial records.
The thing is, however, that bookkeeping is vitally important to your business. Maintaining clear records and reviewing them regularly will help you understand your business’s financial health and allow you to make informed decisions.
If you’re just getting started, bookkeeping doesn’t have to be hard or complicated, either. There are a few simple steps you can take right now that will help you get — and stay — organized while your business grows.
Set up your bookkeeping systems
Before you start doing routine bookkeeping, you will need to take a couple of easy steps to get your system in place.
- Open a business bank account. A dedicated bank account will separate out your business income and expenses, making it much easier for you to keep clean, accurate records. (If you’re not sure how to open a business bank account, we have a handy guide on that here.)
- Choose a bookkeeping system. There are many options here: you can use a simple spreadsheet, get do-it-yourself software like QuickBooks or Wave, or hire a part-time bookkeeper (in person or virtual).
Once you have a bank account and a system to start off with, you’re ready to start bookkeeping on a regular basis.
Routine tasks: what to do and when
Bookkeeping is one of those tasks that’s relatively manageable if you stay on top of it, but overwhelming and not much fun if you don’t.
That means it’s a good idea to set aside small, regular chunks of time on a daily, weekly, and monthly schedule. Here’s what to do in that time:
Gather receipts and records in one place.
There’s not a lot you have to do on a day-to-day basis, but you do need to make sure you’re gathering and retaining clear records of your expenses and income. There are quite a few apps and services (some free, some paid) that will help you store and organize receipts digitally, making this task easier to manage on the go.
Look at your cash flow
Cash flow is, quite simply, the money that’s moving into and out of your business bank account on a daily basis. You might make a ton of sales one week, but wait several days or even weeks before your clients pay you and the money hits your bank account. Regularly monitoring your cash flow and your bank account balance will prevent any payment or billing delays from turning into unpleasant surprises.
Review new or variable expenses
Routine expenses don’t need to be reviewed every week, but if you have expenses that can fluctuate widely or expenses you’ve added recently, it’s a good idea to review them now. For example, if you recently hired a consulting agency to provide tax advice and you’re paying by the hour, it’s a good idea to see how much time is needed and how the cost fits into your projected budget.
Organize your receipts
Remember those receipts you’ve been gathering every day? Now it’s time to go through them, sort them into categories, and make sure they’re stored in an organized fashion so you can easily find them in the future.
Review regular expenses
Every month, it’s a good idea to review your expenses and think about them strategically. How are they lining up with your planned budget? Are there areas where you could cut back, or areas where it’s worth investing more? You can make this step a bit easier and quicker by tagging and filtering transactions throughout the month, if your bank allows you to do so.
When you’re reviewing your financial records, you’ll learn a lot about the financial health of your business. That means that your monthly bookkeeping sessions are a great time to plan for the future. What do you have planned for next month, next quarter, next year? What will your budget look like? What can you do now to support your goals?
Now is also a good time to evaluate your bookkeeping system and improve anything that isn’t working. If the software you tried seems overly complex and you want something more basic, experiment with an excel sheet. If you’re having a hard time managing your books or you’ve found your time would be better spent elsewhere, consider getting help from a virtual bookkeeper (which can be surprisingly affordable).
Stay on top of important tax dates
In addition to the routine tasks you’ll be doing every month, there are specific tax filing deadlines throughout the year. Some of these dates change from year to year, so it's a good idea to regularly check the IRS tax calendar for business and self-employed people.
What’s the tax filing date for LLCs?
LLC (Limited Liability Company) is a legal structure but not a tax structure. If you form an LLC, you can elect to be taxed as a sole proprietorship, a partnership, a C corp, or an S corp. If you specifically elect to be taxed as an S corp, your tax returns will be due on March 15. Otherwise, your taxes will be due on April 15.
What are quarterly estimated taxes?
As a business owner or self-employed person, you don’t have an employer withholding taxes from your paycheck. That means you’re likely required to pay estimated taxes to the IRS every quarter.
In general, you’re required to pay estimated taxes if you expect to owe $1,000 or more when you file your tax return. Corporations are also required to pay tax if they expect to owe $500 or more in taxes. You may also be required to pay estimated taxes if your tax was more than zero last year. You can find more details about estimated taxes plus a worksheet on the IRS website.
Hi there! This post exists to offer you (hopefully) useful information but it cannot take the place of personalized professional advice. Please consult a qualified expert if you have questions about your business. Also, Azlo doesn’t endorse any third-party sites that are linked here.
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