The first step in effective bookkeeping is staying organized. Considering all of the documents that you need to store and prepare, keeping it all organized will save you a lot of time and effort in the long run. It can also cut down on errors that could potentially cost your business a great deal in revenue and fees. Here are some steps to get you started:
Separate your personal and business bank accounts
You may think it’s easier to have a single bank account for your personal and business finances. Well, think again. Having one account can lead to confusion when trying to determine personal expenses from business expenses. This can cause you to input the incorrect number of tax-deductible expenses, which in turn can lead you to being taxed the wrong amount.
Over time, your business will start to collect a large amount of financial records that will have to be kept for at least three years. So, unless you want to be living amongst piles of paperwork, it will be easier to digitize all of your records over keeping them on paper. This will allow you to file and store your records how you want, in addition to providing you with a backup file incase anything happens to the original.
Create records for your accounts payable and receivable
Your accounts payable and receivable are necessary records to keep on-hand in order to keep tabs on your business’ financial health. Having an accounts receivable system, for instance, will help you find accounts that are overdue on their payment to ensure that you receive what you’re owe. An accounts payable can help to prevent any late or duplicate payments to your suppliers.
Unless you’re spending $10 at Subway, then all of your business transactions should be done through credit, not cash. Expenses paid for in cash are difficult to keep track of, which could complicate matters when it’s time to file your tax returns.