5 Good Bookkeeping Habits for Small Business Owners

5 Proven Bookkeeping Tips to Increase Cash Flow in your Business

Do you feel that bookkeeping is not an important business activity?  You’re probably wrong if you think so. 

What about money in the bank that could help you achieve your desired business goals? Now we’re talking.

You don’t have to make bookkeeping more complicated than it needs to be. Adopting some basic, good bookkeeping habits can help you avoid costly errors and stay top of your books each month with little-to-no hassle.

We have put together 5 bookkeeping tips for small business owners. 

Follow these good bookkeeping habits to get a bigger and better handle on your cash flows:

1. Plan for Major Expenses 

Is it likely that you will need a major computer upgrade or any equipment or machinery that needs to be replaced?

• You should be very honest and put such expenses that could be coming up in the next one to five years, on the calendar year in advance.
• Many small businesses are seasonal in nature, hence, it is essential for business owners to acknowledge the seasonal ups and downs, and how it will affect their ability to spend during those times.

By making sure that you have forecasted for major expenses and ups and downs of your business, you’re less likely to miss on business opportunities or finding yourself short of cash.

2. Track Your Expenses

It is important to track each and every expense, to keep your business’ cash flow going in a positive direction.

• Before you start paying, tracking, and accounting your expenses, you need to separate your personal and business expenses.
• Open a separate bank account for your business, so that you don’t have to waste hours examining your expenses at the end of the month. You will know the exact amount that your business has spent and the areas where the amount is spent.

At the time of tax filing, it’ll be much easier for you to write-off relevant business expenses.

3. Record Deposits Correctly

Adopt a good bookkeeping habit to record deposits correctly, whether it’s a pocket notebook and pen, an excel spreadsheet or a proper financial software. 

• Small business owners typically make a variety of deposits into their business account throughout the year, including, sales revenue, loans or cash infusion in the form of capital from personal savings.
• You’re keeping yourself open to paying taxes on the money that isn’t your income if you’re not accounting from where each of the deposits have come. 

4. Set Aside Money for Taxes

You know, as a small business owner, you have to pay taxes to the government at certain deadlines that are already known to you.

The income tax department imposes penalties and interest if the tax amount gets delayed or remains unpaid. 

Hence, a good bookkeeping habit is to systematically put money aside for taxes, to make sure that the money is there when you need it.

5. Keep a close eye on your invoices

Many small business owners & entrepreneurs have to sell products on credit basis to their customers. 

You should have a specific person to track billings of your business and a proper process in place, if a bill goes unpaid.

In case of late payments, you can do the following:

• Issuing a second invoice
• Making a phone call to remind the customer
• Levying penalties such as extra fees after a certain deadline
• Having policies for if a customer pays 30, 60 or 90 days late.

You should always remember that “Every late payment is an interest-free loan and hurts the cash flow of your business”

With your books in order, you’re now ready to achieve your long-term goals, manage cash flows during seasonal ups & down, and improve the profitability of your business.

By analyzing your books, you’ll know exactly how much cash you need and how much you can afford.

Hence, good bookkeeping habits lead to better financing and cash flows of business—it’s that simple.