7 Bookkeeping Basics For a Successful BusinessBondBeebe
Posting by Mike Rockefeller
Proper bookkeeping is an often overlooked, but important, part of the accounting process. Your company will acquire new assets, borrow money, receive income, and perform countless other financial transactions. Recording those transactions in a timely and accurate manner is vital to your business’s success and longevity.
Keeping your finances and records in order will not only help you stay on top of important company credits and debits, but can also help you prevent fraud and financial malfeasance. Additionally, organized books will aid in cash flow management and can provide you with essential financial insights to plan for your company’s growth and future.
Not sure where to start? Here are seven basic principles that will help you keep your books organized and keep your business in good financial health:
- Maintain either manual or electronic ledgers/registers of cash, income and expenses. Develop a chart of accounts and/or categories to track income and expenses (i.e. income, rent, salaries, utilities, travel, office supplies, etc). There are a number of bookkeeping software options; an extremely popular accounting software is QuickBooks by Intuit. Many of these programs are available via your desktop or in an online, cloud-based version. Your data storage capabilities and remote access needs will help you determine whether a desktop or cloud-based option is best for you and your company.
- Keep business records organized. It’s important to maintain your records, either manually or electronically, organized by customers and vendors. This will make your life much easier when trying to determine if a customer has been invoiced and payment has been received, as well as whether a vendor bill has been received and paid.
- Develop a cut-off date to balance your accounts on a regular basis (i.e. monthly) to ensure that accurate expense and income records are maintained and to help determine your company’s profitability.When maintaining your company records, be on the lookout for any un-cleared transactions. This is a deposit or a check that has not cleared the bank. Typically, transactions should clear the bank within 30 days. If this has not happened, determine the status of open items.Your monthly review should also include a search for unusual transactions – such as unusual adjustments or large payments. These can often be red flags for fraudulent activity, and regular review can help you uncover this activity early and help you minimize losses.
- Keep copies of all business-related receipts, even if posted to a credit card and regardless of the dollar value. The smaller amounts add up over the course of a year and if you are claiming a tax deduction, you will need to be able to substantiate it, if necessary.
- If maintaining a petty cash account, keep track of all transactions to ensure your business is accurately claiming all expenses. Make sure receipts are maintained and the account is reconciled on a regular basis (i.e. monthly). We also suggest that you allot a minimum amount each month to petty cash to cover incidentals that come up around the office. Proper maintenance of your petty cash account is also an important step to prevent fraud and embezzlement.
- Track and reimburse for any business expenses paid via personal monies. Maintain receipts and records of these transactions, as there should be a clear distinction between business and personal expenditures.
- Know the tax forms you need to file. Depending on the “life stage” of your company, you’ll need to file different tax forms.When starting a business, the following tax forms are required:
IRS Form SS-4. This form is used to obtain a Federal Identification Number which is needed to file Federal and State tax forms (i.e. payroll withholdings, corporate taxes, etc.). This form can be obtained at the IRS website.State Combined Registration Forms. A Combined Registration Form is needed for each state in which you have a location or plan to do business (i.e. sales, payroll withholdings, unemployment taxes, property, etc). In most cases these forms can be filed electronically once you have obtained your Federal Identification Number.
When your business is growing and you are hiring employees, the following forms are required:
Payroll forms for each employee include IRS Forms I-9 (PDF) and W-4, as well as individual State Exemption Forms.
IRS Form 1099-Miscellaneous will need to be issued to self-employed contractors and law firms paid over $600 in a calendar year. It is also issued to report rent payments made during a given year. The form can be found, along with preparation instructions, on the IRS website.
It’s important to note that sales tax forms may also be required for your business, and of course, you will need to file applicable income and personal property tax filings. All employer-required forms and tax reporting requirements can be found on the IRS.gov website and also at the Department of Labor sites for each state.
Having an internal or contracted bookkeeper available who has essential knowledge is necessary for any company. Maintaining clean records should be one of your first priorities and is key to a successful, profitable business.