Updated: Feb 3
As a business owner, you'll find you have to wear many hats. This could mean you are in charge of product development, marketing, social media, repairs, purchasing, inventory, sales, hiring, customer service, and accounting. You are a veritable chief, cook, and bottle washer. If you are like most business owners, this is the time of year when you're focused on the accounting end of your job, as tax time rolls around and the year-end books are being closed out. Unless you’re an actual accountant, the thought of bookkeeping and taxes is probably a daunting one. It’s a crucial part of your business but, if handled poorly, could ruin all your hard work.
Solid bookkeeping practices can provide a huge boost to your business's credibility and creditworthiness if you can focus on these ten primary goals: 1. Make good bookkeeping a priority from the start Don't put off tasks or processes you’re not particularly interested in. Proper accounting should be a priority. Not only is keeping accurate books crucial to your company’s financial health and success, but putting it off will compound the stresses, exacerbate errors, and quickly become overwhelming as more time passes. When applying for business credit, depending on the loan size, you will likely be required to provide an accurate accounting of your income and expenses. 2. Invest in the right software There are plenty of services available to help you keep your finances straight. If you are just getting your feet wet, you aren't going to need an expensive and complicated enterprise-level service but, at the same time, you do need to make sure any software or service you purchase will be scale-able as your business grows. More complicated software doesn’t do you any good if you don’t know how to fully utilize it. 3. Hire a professional If accounting isn’t your thing, you’ll want to hire a professional as soon as your company is to the point where its finances need extra attention and you can afford to add someone to the payroll. Most paid services will work on a sliding fee scale, charging you a base rate for base services, and then ramping up as your business and accounting demands grow. 4. Keep business and personal separated When you’re just starting out, it can be easy to blur the lines between business and personal spending and income. Even if there's not much money coming in, don’t get into the habit of mixing up your finances. Set up specific accounts for your business, budget purchases wisely, and pay business expenses using a separate business checking account, debit card, or credit card. Remember, business expenses paid using personal resources are generally not included in business credit reporting. 5. Track all income and expenses Track anything and everything related to your business by clearly recording all transactions, saving receipts, and logging expenditures. Not only will you need to track activity to see how much you profited but also for tax purposes at the end of the year. 6. Stay organized throughout the year It’s easy to fall behind on tracking and keeping records of everything, but the more organized and consistent you are throughout the year, the better positioned you’ll be when tax time comes. Schedule time to check your finances, and make organizing a regular habit, even if you do have a dedicated accountant on staff. Taking time to consistently check the books and see where things stand will ensure you don’t make mistakes or have things fall through the cracks. 7. Plan (and budget) for major expenses Think into the future to plan for significant expenses, such as new hardware, inventory, improvements, or system upgrades. Being aware of large expenses down the road will help you better manage your finances now to comfortably spend on those purchases or make it through a rough patch. Borrowing for growth is different than borrowing to meet daily expenses, and lenders factor in the purpose of the loan when making a lending decision. 8. Learn as you earn While accounting software is intended to be as jargon free and easy to understand as possible, it important that you understand basic accounting terms and processes. This doesn't have to be degree-level education, but just a simple understanding of how your Profit and Loss report and Balance Sheet can identify problem areas or boost your creditworthiness. 9. Put your financials to work for you Dun & Bradstreet allows business owners to submit their annual P&L and Balance Sheet to their corporate credit report as a means of further advancing credit potential by boosting scores and ratings. While submitting financial statements is mandatory for publicly traded companies, its voluntary for privately held businesses. Prior year financials should be submitted before June 1st, and can either be uploaded directly into D&B's support ticket portal or by emailing copies to firstname.lastname@example.org with your D&B D-U-N-S number and business name in the subject line.
10. Always pay bills on time (even if there is a problem) Automated systems, not humans, report purchasing, invoicing, and payment dates to the business credit bureaus. Your payment has to be received and posted into your account before the due date in the system or that system will report the payment as late. You should mail payments 10-12 days in advance of the due date. When paying online, allow 2-3 days for a payment to reflect against your account. If you are calling in to your supplier to make a payment, be sure the payment can be processed 3-5 days in advance of the due date. If there is a problem with an order or invoice discrepancy, you have the advantage if the payment has been received. If you withhold payment, the transaction will get reported as derogatory and negatively impact your credit scores and ratings. Not everything you do has an impact on your corporate credit, but it's wise to take advantage of every tip and technique available to you when you are working to improve your company's potential to succeed.
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