When you embark on a new business venture, your focus is likely on the service or product that you’re providing, and not on the record-keeping responsibilities that come with the territory. Still, as nice as it would be to set aside things like general ledgers and accounting, they are an essential element of making your business a success, so it is important that you have a good grasp of the bookkeeping that needs to be done.
What Bookkeeping Tasks Need to be Completed?
Keeping good records serves a number of purposes. It lets you keep track of the health of your business at a glance. It also provides you with the data that you need to submit to the federal and state government every year at tax time. The more accurate and complete your financial records are, the better the information that will be available for both purposes.
Comprehensive bookkeeping will contain information about your revenues, your profits, and how much money is flowing out of your business for expenses, wages and other transactions. Being able to easily extract this information will definitely prove to be a benefit – you just have to decide how to go about it. It is a responsibility that can be outsourced to a small business accountant, or you can take it on yourself. There are advantages to both strategies – it can take some time to learn the process, but keeping your own books will ensure that you are always aware of your business’ health. By the same token, letting a professional do the job will free you up to concentrate on what you do best and are most interested in.
Doing Your Bookkeeping Yourself
There is no doubt that if you assign the bookkeeping responsibility to an accounting professional, it will save you the time and trouble of learning how to do it and setting aside time each week to keep up to date. By the same token, there is nothing like keeping track of all transactions to give you a strong sense of how your business is doing. Doing your own books will save you the expense of paying somebody else, but you do need to account for the value of your own time. You also need to remember that there are certain opportunities and advantages that come with using a knowledgeable professional that dedicates themselves to keeping up with all of the rules and requirements that the job entails. What you don’t know definitely can hurt you, especially when it comes to submitting the proper paperwork to the IRS. The decision as to who should do this important record-keeping is ultimately a question of where you find the most value.
What You Need to Know
For those who opt for going it alone and doing their own books, there are a few basics that you need to know. First and foremost, it is important for you to understand that your particular bookkeeping requirements are dependent upon what type of entity your business is – sole proprietorships and corporations have very different responsibilities, and you should take the time to make sure that you fully understand your reporting obligations. Beyond that, every business would do well to assign themselves certain bookkeeping tasks that need to be done each day, as well as others that should be addressed at more distant intervals. The schedule provided below should prove to be invaluable at outlining your responsibilities.
The most important question that a business owner needs to answer for themselves at the start of each day is whether they have enough cash in the bank to pay for all of their necessary expenses.
Set aside one day a week to address the following items:
- Invoicing – Though preparing and sending out invoices can take a lot of time, it is essential that this is done on a regular basis in order to ensure that cash flow is strong.
- Accounts payable – It is essential that you attend to paying your suppliers on a regular basis. Not only will doing so keep you from being subject to late fees, but will keep your relationships solid and put you in good stead should you ever need your terms extended. Some suppliers may even offer you better terms or discounts for early or prompt payments.
- Recordkeeping – Every transaction that your business engages in needs to be recorded, whether it is an expense such as wages or cash coming in from sales.
- Filing – Whether you keep your records on paper or digitally, you need to have a filing system that allows you to track all expenses and receipts and to quickly produce copies of all pertinent records if needed. Make sure that you attend to this weekly, as the longer you wait to file documents, the more cumbersome and time consuming the job can be.
- Check your cash position – You want to keep your eyes on your bank account on a regular basis so that you can gauge your cash flow health and your ability to continue paying your employees and your bills.
- Compare to previous months – The best way to assess the performance of your business is to take a look at profits from previous months and compare revenues and outflow.
- Keep up with payroll – Your responsibilities to your employees go beyond paying them their wages and salaries. You also need to keep up with payroll tax payments.
- Check your payables – Make sure that you are up-to-date on all payments.
- Check your accounts receivable – It is a mistake to let too much time go by without checking your accounts receivables. Customers that are late in submitting payment need to be identified and you may want to initiate some actions to collect payments, especially if cash flow is a concern.
- Review your financial transaction records – This is the best way to determine exactly where your money is going and ensure that it is being properly spent. Businesses that check the details are in the best position to protect against fraud and accounting mistakes that can cost down the road.
- Business Assessment – Once a quarter you should take a look at your profit and loss estimates and compare where you thought you would be with where you actually are. By taking a look at your actual revenues, profits, and expenses on a quarterly basis, you give yourself the opportunity to shift course, correct mistakes and make improvements.
- Tax review – Depending upon your individual business, you may have obligatory payments due to the IRS or your state or local government.
- Analyze and pay your estimated tax payments – Every business is required to pay quarterly estimated income taxes to the Internal Revenue Service. Once a quarter these payments are due, and it is a good idea to make sure that you are paying the appropriate amount and send in the payment in a timely manner.
- Depending upon which financial calendar your business follows, you will need to prepare and submit your tax return, your self-employment taxes, or your corporate taxes. Whenever these are due for your business, you should take the time beforehand to analyze all documents that you are providing to your accountant to ensure that they are complete and accurate. The same is true for the return that is prepared for you. The better you understand your business’ financials, the more effective you will be at reviewing the prepared return and ensuring that it is correct before signing off on it.
- Prepare W-2s and 1099s in a timely manner. Every business is required to provide their full time employees and their independent contractors with these important documents so that they can prepare their own tax forms For 2016 W-2, W-3 and 1099-MISC reporting non-employee compensation the due date for filing the government’s copy is January 31, 2017 (the previous due date was February 28). The due date to the employee or independent contractor remains January 31.
- Analyze Accounts Receivable Status – When tax time comes, it is important that you carefully assess your accounts receivables to determine whether you should write monies owed to you off or continue to pursue collections.
- Analyze Inventory – Current inventory can represent another important tax item. Make sure that you have an up-to-date assessment of your stock on hand so that you can evaluate and write-down what has not been sold. Failure to do this accurately means that you are likely to end up paying too much in taxes.
There are a lot of responsibilities managing your business bookkeeping, but there are also a lot of rewards. Following this checklist should help you keep organized and make sure that you address all of the necessary details.