Entrepreneurs take risks, juggling so many different aspects of starting and building a business. For many entrepreneurs, once the business is viable, they sell it and move on to create the next startup. Entrepreneurial bookkeeping is critical since it will provide the basis for determining the value of their startup to figure out the sale price.
Finding the best idea for a startup and building a business are the skills of an entrepreneur, but administrative work is less appealing than generating sales or coming up with the best way to reach your target audience. To build a solid foundation, accounting and bookkeeping are essential skills to develop. Let’s dive into what bookkeeping is and how you can utilize it effectively as you grow your business.
What is Bookkeeping?
At its core, bookkeeping is the practice of organizing, maintaining, and classifying the financial records of your business. Every financial transaction needs to be recorded in order to understand where capital is being spent, thus creating a record of income and expenses. Additionally, categorizing transactions can be analyzed to determine if expenses are out of line with sales or the overall industry.
Restaurants, for instance, have industry standards for labor and food costs, which can assist a new owner to figure out whether they are on target or if adjustments are necessary. Most businesses use an accounting method to track all their expenses, either a spreadsheet or specialized accounting software.
Why is Bookkeeping Important for Entrepreneurs?
Effective bookkeeping gives entrepreneurs the knowledge and information necessary to make the best financial decisions to grow their businesses. Establishing a budget, planning your investment strategy, preparing for tax time, adding staff, and even deciding whether to expand your product line are all easier when you have accurate financial records. If you want to encourage investors to provide capital for expansion, then you need to be able to show that the business is financially viable and healthy. Accurate bookkeeping for entrepreneurs gives you the ability to illustrate that effectively.
9 Must-Know Bookkeeping Tips for Entrepreneurs
Most entrepreneurs are not the ones toiling over their bookkeeping since they often utilize a bookkeeper or accountant to handle much of the daily transactions and upkeep of the general ledger. It is important to note that bookkeeping and accounting are two different aspects of the finances of your business.
Your bookkeeper is performing the function of keeping your records organized and accurate while accounting takes that information and uses it for analysis and interpretation. Accountants are also involved in preparing yearly statements, assisting with filing taxes, and quarterly reporting. With a combination of the two, your business has the right financial experts to determine the financial health of your business. But as an entrepreneur, you might consider just hiring any bookkeeper, but the truth is finding a bookkeeper who specializes in startups can be key to your long-term success.
Even if you are not handling all the day-to-day aspects of your bookkeeping, however, it is important to take these 9 bookkeeping tips to ensure that your finances are accurate. While many of them are simple to follow, others will require you to work with your bookkeeper.
1. Set up a separate business bank account
Setting up a separate business bank account means your business transactions will not be mixed with your personal ones, thus allowing for accurate recording of all expenses and income.
2. Keep detailed records
Make sure that your bookkeeper has all receipts for expenses related to the business. This will allow your bookkeeper to get all the transactions recorded, thus making sure your financial records are up-to-date.
3. Use bookkeeping software
Never assume that you can put together a spreadsheet in Excel and have your bookkeeping covered. Instead, use bookkeeping software since it can assist you with categorizing transactions, defining income versus expenses, and creating financial statements as needed. Bookkeeping for entrepreneurs involves knowing the financial health of your startup or small business, and the right software can give you the tools to do just that.
4. Stay on top of invoicing and payments
With most businesses, the challenge is staying on top of all the daily tasks necessary to keep it moving forward. Getting behind on paying your vendors or invoicing your clients could leave your business in a poor cash flow position. Hiring a bookkeeping service can assist you in staying on top of these tasks, thus positively impacting your finances and your cash flow.
5. Categorize expenses correctly
Not every expense falls under miscellaneous, no matter how easy it is to categorize everything that way. Working with your bookkeeper, you can easily create categories for your expenses, so you know how much you are spending on raw materials, sales, marketing, overhead, and production. That knowledge can assist you in keeping your expenses in line and also accurately reflects the amount of capital necessary to keep your business running smoothly.
6. Reconcile your accounts regularly
Reconciling your accounts is essential because it helps you to make sure all transactions have been accounted for and that your numbers are reconciling within your general ledger. Entrepreneurial bookkeeping includes all the expenses related to starting your business, so it’s important that you reconcile to avoid losing potential tax benefits due to not having all your transactions accurately reported.
7. Plan for taxes
Tax time comes around every year at the same time, yet so many entrepreneurs are surprised because they didn’t plan to file their taxes or pay their tax bills. When you use bookkeeping for entrepreneurs, you put yourself in the position to have all your financial statements ready for easy filing, plus you will have been making the necessary payments, so you won’t be surprised by your tax bill.
8. Review financial statements
Never wait until the end of the year to review your financial statements. Make it a part of your routine, doing it monthly. Doing so will mean you know where your business stands, what is still outstanding in accounts receivable and accounts payable, and your debt ratio. Regular reviews of your financial statements give you a clear path to understand where your business is financially in real-time, versus months down the road, thus allowing you to make essential decisions based upon accurate data.
9. Seek professional help when needed
Entrepreneurial bookkeeping doesn’t make you an expert on financial matters. You might still have questions or need assistance with analysis. Turning to a financial expert can help. Additionally, having a bookkeeper as part of your team can be a great way to keep your financials accurate and up-to-date while taking one task off your growing to-do list. How can you find the right bookkeeper to fit your needs?
It starts by understanding that a startup has unique needs versus an established business, and you need a bookkeeper with that knowledge and experience. Working with a bookkeeping service can be the key to managing your business from its startup phase as it grows into a stable and viable business.
What Is AccountsBalance?
AccountsBalance is a monthly bookkeeping service specialized for agencies & SAAS companies.
We take monthly bookkeeping off your plate and deliver you your financial statements by the 15th or 20th of each month.
You’ll have your Profit and Loss Statement, Balance Sheet, and Cash Flow Statement ready for analysis each month so you and your business partners can make better business decisions.
Interested in learning more? Schedule a call with our CEO, Nathan Hirsch.
And here’s some free resources:
Bookkeeping for entrepreneurs is full of practical administrative details, which take time, organization, and being detail-oriented. With these 9 bookkeeping tips in mind, you can take your startup to the next level while making sure your financials are accurate. When you are ready to exit your business, your financials will reflect the value of your hard work because you ensured the bookkeeping wasn’t neglected. Ready to find your next bookkeeping service for your latest startup? Our team is ready to assist!