Keeping good records relieves stress and makes running your business easier and more enjoyable. But it may not look like what you think if you’ve run your business by saving receipts all year long and then trying to handle your bookkeeping all at once at tax time.
First and foremost, don’t handle your bookkeeping yourself. Your focus should be on sales and marketing for your business, with bookkeeping outsourced to someone who does books for a living. But, be careful! Not all bookkeepers are equal. Find one who will help you to set up systems, like those described in this article, that get you the reporting you need and not just record debits and credits.
Although good record keeping can easily get overwhelming, it’s easy to do if you follow these best practices.
Schedule a monthly meeting with your bookkeeper (and your Business Lawyer, if you have one) to review your P&L and categorize all expenses properly on an ongoing basis. This will keep you from scrambling come tax time, and you’ll maximize all deductions. If your business is earning 6-figures or more, you may also want a weekly financial report prepared for you that shows what you have in the bank, what’s coming in, and what’s going out a set period of time.
Create a system with your bookkeeper so that you do not need to keep any paper records yourself. Instead, send everything to your bookkeeper electronically so that he or she can keep all of your invoices, paid bills and critical paperwork in a digital file for you.
Do your banking with a bank that provides electronic copies of checks, so you don’t need to keep paper copies yourself. Likewise, send your bookkeeper a copy of the invoice or bill you are paying with each check. If discrepancies arise in the future, it will be easy to reference checks and invoices to sort things out.
Ensure your bookkeeper keeps copies of all invoices you send out, and has a thoughtful way of organizing your invoices for easy reference. Your bookkeeper should also keep track of any accounts receivable with monthly reports submitted to you, so you can talk with your Creative Business Lawyer® if you need collection support. Accounts receivable that go on too long or are overlooked, are less likely to ever get collected. Ensure your profit and loss breaks income down by revenue stream, and possibly even by class, as your revenue grows.
Lastly, but most importantly, do not procrastinate on finding the right bookkeeper for your business! Yes, it is an investment, but an important one that will pay out big returns in tax and time savings for you each year.
This is perhaps the most obvious but most crucial best practice. Set aside an hour each week (ideally on the day you’ve scheduled to work ON your business) to review your financials and proactively meet with your bookkeeper each month to review that P&L and keep it up to date.
Good record keeping for small businesses is often more about having a great relationship with your bookkeeper, regularly meeting and knowing what to look at during those meetings than it is about keeping copies of checks and receipts. If you need help getting started, sit down with us as your Business Lawyer for guidance. We can help you put systems in place to help you organize your business and build a foundation for success. Meeting with a trusted Business Lawyer will help you identify what your business needs to thrive.
We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.