In the United States, there are over thirty million small businesses. Every one of those businesses has something in common with the top Fortune 500 companies: they all need to keep track of their finances. Bookkeeping is a necessary part of every business and none can survive without it.

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Here are 7 tips to help you with your small business bookkeeping:

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1. Keep business and personal expenses separate. In accounting, when the funds of one party are mixed with funds of another party, it is known as “commingling.”  While this may sound like what happens at a singles mixer, it is actually one of the most common mistakes made by small business owners.  Even though business owners know instinctively they should keep things separate, you should set up a system to partition your accounts to keep things from becoming a tangled mess that will cause serious headaches and possible audits down the road.

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2. Avoid paying with cash. Paying for that printer cartridge with cash when you make a quick stop at the office supply store can be convenient, and you’ll remember to file that receipt, right? As we all know, those cash receipts tend to get lost or become unreadable. Your record-keeping will be much more clear if you pay by check or credit card and you will have a record of the expense when those statements arrive.  And especially, in the event of an audit, the IRS prefers credit card and checking account records over cash.

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3. Determine who you’re hiring – employees or independent contractors. In today’s world, the demand for a flexible workforce is greater than ever. Many business owners need a combination of employees along with freelance talent in order to stay competitive. The rules around the classification of workers as employees or independent contractors can be difficult to interpret; so be careful to classify your workers properly. Misclassification can lead to serious tax and employment law implications.

 

4. Keep your records for 7 years. All businesses, large and small, produce an array of records.  But keeping good records is more than just filing away a few documents in case they’re needed in the future.  Financial and tax records, employment records, corporate records and insurance records are all vital to maintain. A solid record retention policy is to keep all records for seven years.

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5. Put internal controls in place. One of the best practices a small business can implement is to establish internal controls.  A lack of internal controls is the biggest factor in small organizations experiencing fraud or theft. In fact, the Association of Certified Fraud Examiners has determined that 30% of all fraud cases occur in small businesses with less than 100 employees. Internal controls cover everything from segregation of duties for employees, policies and procedures, oversight and access to information systems.

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6. Read your financial statements. Just as a doctor listens to your heart with a stethoscope to determine your health, you should make a habit of reading your financial statements monthly, or at least quarterly.  There is no better way to determine your business’s health than through those reports. Balance sheets, income statements and cash flow statements are vital to understanding how profitable your business is, how you spend your money, what your business is worth and what resources you have to invest back into your business. Your bookkeeper or accountant is a good resource to go over them with you and help you make strategic decisions.

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7. Hire a professional bookkeeper. It is impossible for a person to be an expert at everything. You have built a business because you have skills and talent in a specific area. That’s exactly why you should consider hiring a competent, professional bookkeeper. Unless you are educated and trained in all aspects of accounting, financial principles, and tax accounting, you will be spending your valuable time on matters that keep you away from growing your business. A professional bookkeeper can do everything from maintaining your records, invoicing, handling payrolls, preparing taxes, and keeping your business aligned with employment and tax regulations. If you decide to hire a bookkeeper, choose one with years of experience. It will save you time, money and aggravation.