Four Basic Rules for Small-Business Bookkeeping
Darla Dernovsek
When you run your own business, keeping your books up-to-date is essential. One missed entry could mean disaster. These tips can help keep you on track.
Rule one: Keep track of what you spend
Keep and sort your receipts for purchases. Create some type of system to sort receipts--date and function are two options--so you can find receipts if needed. You may separate these receipts into accounts to keep track of income and expenses for particular customers or projects. Record these receipts in your ledger--on paper, computer, or both--so you have a running total of your expenses.
Rule two: Keep track of what you're owed
Bill customers promptly when a job is completed. Keep track of who owes you money, and remind them to pay you on a regular basis, usually once a month. Every small-business owner has stories about bills that were mislaid or lost and customers who were surprised to learn that they forgot to pay. Promptly record payments. Customers who paid you weeks earlier may be offended if they receive another bill. Finally, create a system to record payments--on paper, computer, or both. Depending on the size of your business, you may want to separate payments into accounts to monitor earnings from different products or activities.
Rule three: Compare earnings to expenses
Tally earnings and expenses on a regular basis--daily, weekly, monthly, or quarterly--depending on the size of your business. Then compare the two. This is where having accounts to track specific activities or expenses can be particularly helpful, since it helps identify products or activities that are profitable, as well as changes that could improve profits.
Rule four: Monitor cash flow
Your accounting system may claim that you're making money even when you don't have any in your pocket. When the flow of payments into your business happens on a different schedule than the flow of money out of your business in the form of expenses, you can end up owing more than you have on hand. Be aware of the flow of income and expenses, so you can work with a lender or tap into other resources to cover shortfalls. Monitoring cash flow also can help determine whether you need to create policies to encourage clients to pay in a timely manner, change how you bill projects, or even change your prices. It also may give you the information needed to decide when to make an optional purchase, and when to delay it.
Published August 2, 2004
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