Posted on November 3, 2015
“Bookkeeping,” explains Cindy Dudden, Partner CPA with Gracey & Dudden, PC, “is necessary for any small business because it is the way to gauge the health of your company.”
Compiling and consolidating financial data – that’s bookkeeping in a nutshell! – tells you about your total expenses, which, in turn, will help you discern your business trends and determine your bottom line: Are you making or losing money? Boost your business with these bookkeeping practices.
Meet with a professional.
How should you file your bank and credit statements? How do you reconcile your books? “It can be overwhelming at first. But, once you get into the routine, it shouldn’t take too much time,” assures Dudden.
“If you don’t have experience in bookkeeping, you need to learn what to do,” Dudden continues, urging all self-employed individuals to set up a consultation with an expert. One session with a pro, and you should have the knowledge needed to care for your interior books.
Have your books in place before you open up shop.
“We work with so many small businesses that have been around for a year or two and don’t have any systems in place,” Dudden says. Implementing a bookkeeping system and playing catch-up is more than a little annoying — it’s time consuming, and could be costly, too. As Dudden puts it, “You can be there every day, cutting and coloring hair, but you’ll never know how you’re doing until you work on your business.”
Create your ledger.
Your ledger can be set up on an Excel spreadsheet, or in accounting or personal finance software — Dudden likes QuickBooks because the program is simple and generated for the non-accountant. Heck, your ledger doesn’t even have to be electronic; you can use an old school, four-column paper ledger system, if you’d like. “Something,” Dudden says, “is better than nothing.”
Once you’ve picked a format, you’ll start by recording the current balance of all of your financial accounts. Then, you’ll keep track of incoming revenue – or, the cash you receive for services and, possibly, products – and the payments you make. “Your expenses,” Dudden reminds, “aren’t just what you pay with your debit card.” Plan on keeping track of business expenses charged to credit, along with cash payments. “It’s about accumulating all of the outflow possibilities, and compiling them into one area,” says Dudden.
Earn some brownie points by creating a payment schedule for upcoming, recurring transactions: rent and utilities, insurance and product purchases, for example. This is called your Accounts Payable, and it’ll help you keep track of bills so you don’t incur penalties for late payments.
Don’t miss expenses!
This is one of the most common bookkeeping mistakes Dudden sees in her office, and it usually happens when a small business owner pays cash for something: “The receipt gets thrown on the floor of the car, and it is missed; there’s no record of it,” says Dudden.
The same goes for paying a business expense with a personal credit or debit card. “Our recommendation is that stylists should have a separate credit card for their business,” Dudden says, adding that, “ No matter how your entity is structured you should not comingle business and personal assets.” (Many – many! – self-employed individuals don’t follow this rule, and that’s a mistake.)
The products you stock for your customers are essentially money sitting on your shelves, and they need to be accounted for. Every so often, take time to test the numbers in your books by physically counting shampoos, conditioners and other inventory you keep on hand.
Record auto expenses properly.
As a Sola stylist, you have a salon you go to, and it functions as your office; driving there is called commuting, explains Dudden. “The drive from your home to the salon is not a business expense,” she clarifies. But, once you’re at work, you might rack up mileage running around town to, say, deposit checks at the bank and grab a few supplies. Before you know it, you’ve gone 50 miles, and that’s a work-related expense worth documenting.
Keep track of all of those business miles, and, also, the total number of miles you’ve driven. “If you don’t have those two pieces, then you don’t have an auto deduction,” Dudden says. Here’s one of her IRS secrets: “Get your oil changed or have your car serviced annually so you’ll have an independent resource to tell you your total miles.”
Reconcile your ledger.
Now that you’ve created your ledger and started recording your transactions, you’ll want to take time, periodically, to reconcile your books with your bank statement. “It’s the same as what one would do in your household,” says Dudden, explaining, “It’s reconciling your checkbook, and looking at where the money went.” That way, Dudden continues, “At the end of any given period, you have information at your fingertips to help you make decisions.”
Psst: Financial and accounting software programs help simplify this step by automatically downloading bank records, allowing for quicker cross-referencing.
Make bookkeeping part of your weekly routine by recording all revenue and expenses on a set day. If you’re diligent about sticking to this plan, Dudden says it shouldn’t take more than half an hour to keep book. Put it off for six months, though, and you’ll be backpedaling all day.
Sources: Cindy Dudden, CPA at Gracey & Dudden, PC: 303-736-6600