We are constantly talking to our clients (and writing about) the importance of good bookkeeping. Accurate books can show where your business is losing money or areas where you need to cut costs. As one startup blog cleverly noted, “being unaware of your business finances is like driving a car without any dashboard displays: you won’t know how fast you’re driving, when you’re going to run out of fuel or when you need a service.”
This fact is especially important for startups, where a bookkeeping oversight could shut down the doors forever. Cash flow is of utmost importance, and the ability to record, interpret and analyze money coming in and out is essential in understanding things like burn rate and profitability.
We understand that it doesn’t make sense for every new business to hire a bookkeeper right off the bat. That, however, does not mean that you don’t have to maintain your own books. Starting off on the foot right with managing your costs and profits means saving significant time and money down the road — and positioning yourself for investment. Here are a few tips to make sure you are laying the foundation for a successful journey ahead.
1 Set up a basic ledger system using excel. As we know at MBS, bookkeeping is just a simplified way of showing what comes in and out of your bank account. This might be a sales ledger, which details money received or owed, or a purchase ledger which shows sums paid out or owed by your business. In the beginning, you don’t need anything other than excel to record all of your transactions.
2 Keep your receipts! An easy low-tech way to organize receipts for legitimate business expenses is with envelopes or bucket files filed by month. Or, use one credit card for business expenses enter charges from your online banking into your spreadsheet at the end of each month. Make sure you make a copy or keep a stub of invoices and utility bills as well. If you can, scanning paper copies and saving to monthly files or using an app like Expensify is a good way to go. (There are others like Shoeboxed, the Harvest API Expense Tracker, and even some credit card companies like Chase’s Jot.)
3 Open a corporate bank account. Co-mingling of personal and business funds is never a good thing. Not only can it be ethically questionable, it becomes more difficult to reconcile transactions, recognize patterns or stay current on the financial viability of your company.
4 Open your mail. Yes, this is totally obvious. But I see so many clients with piles of mail that they don’t have the time to get to or just don’t want to deal with. This leads to nothing but problems and anxiety down the road. It is also best for you to be the person that reviews all incoming mail even if you pass it on to someone else to handle (i.e., give a once over for any transactions that an employee may have made without your permission).
5 Set up a monthly billing and payment cycle. Pay suppliers and staff on the same day bi-weekly/monthly. Earn a reputation as a professional, reputable business partner and stay on top of your payments. Remember that being respected as a responsible partner means the ability to negotiate better contract terms and land great referrals and staff members. If you cannot make your payments, don’t hide from your vendors! Rather, have a discussion about how you will manage the bill, even if its a deferred payment or monthly installments.
6 Standardize business transactions with templates. Some good beginning templates include a bank and credit card reconciliation forms, billing template (with terms), and petty cash logs. Feel free to add others that match your daily transactions, just make sure forms are consistent and all necessary field are present.
7 Simplify your life by favoring bank transfers and credit cards over checks. Checks are prone to human error, they can bounce and they can go missing. With bank transfers or credit cards, payments can be automated, they are traceable and the account is not easily overdrawn.
8 Reconcile your bank statements. Remember, account for everything that enters and leaves your bank account. This alone will save incredible amounts of time and money down the road.
9 Aim for the cloud. Aggregating all of your financial information in one central, searchable place makes way for painless yearly tax preparation and a smooth transition out of DIY bookkeeping when the time comes to either hire a full time bookkeeper or outsource your bookkeeping.
10 And when it’s time…. outsource your bookkeeping! As we say at MBS, your job as a business owner is to drum up business, improve your product and interact with your customers. Your time should not be spent fumbling through receipts and trying to reconcile bank statements. An outsourced bookkeeping company like ours is more often than not bonded as well, protecting your business from negligence or embezzlement.