Running a business takes more than its fair share of time and effort, not to mention the seemingly endless road bumps along the way. Often, small business owners have a multitude of reasons why bookkeeping takes a backseat to the many other business related tasks. Reasons include lack of training or knowledge in accounting, the inability to afford a quality bookkeeper, or perhaps feeling that is does not add significant value to their business.
While it is true accounting can become complex, the majority of everyday transactions are relatively straight forward. There are some basic overall considerations you should keep in mind while recording transactions.
- Recording the movement of cash in and out of the business will get you most of the way there. Even if you are not certain where both sides of the entry go, it is important to record it. Balancing your cash account to the bank balance monthly puts you on the right track.
- All portions of the transaction should be recorded. For example, if you trade tractors with another farmer and pay an extra $1,000 to cover the difference, you should be recording the movement of the old tractor off your books, the payment of $1,000 towards the new tractor, and the acquisition of the new tractor. When in doubt, keep as much detail as possible for later reference.
- Look to other transactions to help guide you. If you’re not sure how to record something, you can look at how it was recorded the last time. If the transaction is new, try to find a very similar transaction to model it after.
Hiring an employee to handle your small business accounting can be too costly, so it is usually up to the business owner to maintain them. It is important to find a schedule that works for you and stick with it. Keeping up with books will help you better handle repetitive transactions and give you a good basis of how to handle new ones. It will prevent those mad rush moments when you are trying to post several months or more of transactions and can’t seem to recall exactly how things went. If you are having issues figuring out just how to handle various transactions, make a list and call your CPA. It is usually easier to handle these when they are current rather than waiting until the end of the year when they are in the peak of their busy season.
Often underrated is the value gained by having a better understanding and more current sense of just how your business is doing. Having a current and accurate record of your business is valuable to financing institutions, investors, partners, your CPA and many others, which adds up to saved time, money and headaches. Many owners have a feel for how they are performing but you should know exactly why you are having the year you are. Tracking your sales and expenses accurately allows you to focus on keeping your margins intact, avoiding cash shortages and monitoring how your hard work is directly contributing to improving your business.
If you don’t know where to start, your CPA is a great tool to utilize for your small business accounting. Not only are they a key user of the information you provide, but they have years of experience with what works and what doesn’t when it comes to record keeping. Working with clients of various size and complexity gives a CPA the ability to help you maintain your records and avoid growing-pains as your business expands.
By: Daniel Crawford, CPA