As a small business owner, you might not be in the position initially to hire a professional to manage your finances, which is why you will have to invest your time and effort in managing your finances yourself – in the start, at least.
Here are some bookkeeping tips to know:
Keep Your Personal And Business Expenses Separate
The first tip is to separate your business expenses from your personal expenses and vice versa. You should make sure that your business and personal transactions are not mixed so it is clear to the RS what your business is earning and spending. Also, it will help you get a clear picture of your bottom line net profit.
If you run a C corporation, it is incredibly important for you to have separate bank accounts for your business and personal finances. On that note, if you are in the initial phase of setting up your corporation, we recommend using a Dataroom to share sensitive documents with other stakeholders in a secure and controlled environment.
Single vs. Double Entry
You should know that when it comes to bookkeeping, double-entry is a system in accounting that tracks where your money is coming from and where it is going. Essentially, what you do is record every transaction twice while taking assets from somewhere, also known as credit, and putting them somewhere else, which is known as debit.
Your debits and credits should ideally always equal each other. This is an efficient way to know that your books are balanced.
On the other hand, when it comes to single entries, you might have already guessed that it is about recording your transactions once as they happen. This system is not as robust as the double-entry system – but – if your business is a simple sole proprietorship with zero employees and inventory, then you can probably rely on the single-entry method.
Cash vs. Accrual
When it comes to the cash method, you only recognize it when you receive it. For instance, you deposit a check into your account. In this case, it is recognized as a cash method. On the other hand, when it comes to the accrual method, you recognize revenue only as it is earned. For instance, once you complete a project and write the invoice.
As a small business owner, if you are just getting started, we recommend using the cash method. Why, you might ask? Well, the answer is that it is easy to switch from cash to accrual if that is what you need to do.
If you manage large assets or investments, you will probably need to stick to the accrual method. Before choosing one of the methods, you might want to talk to a professional accountant to determine which method will be best for your business.
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Final Thoughts
As a small business owner who is just starting out, we recommend focusing on the right marketing strategies to boost revenue as an efficient way to reduce your business loan. By increasing your business income, you can pay off your debts faster and boost your overall credit score to manage your finances effectively.