9 Bookkeeping Tips Your Financial Institution Can Share with Small Businesses
Establishing good bookkeeping and accounting habits and consistently tracking your finances will ensure you avoid making errors that may prove costly later down the line. As a financial institution or financial technology (fintech) company, you can support your small- and medium-sized businesses (SMBs) in proper bookkeeping tactics. Proper bookkeeping ensures the data SMBs have on themselves is accurate and up-to-date so your financial services are accessing the right data. Below are nine ways a small business can establish great bookkeeping and accounting habits.
For small business owners and independent contractors working in any field, accurate bookkeeping is as essential as it is onerous unless working with numbers and spreadsheets is something you enjoy. For most of us, though, it isn’t a pleasurable experience. Nevertheless, establishing good habits and consistently tracking your finances will ensure you avoid making errors that may prove costly later down the line.
Whether your small business has been around for a few years or if you’re on the cusp of launching a new startup venture, keeping up with accounting-related tasks can become overwhelming quickly if you’re unprepared.
Here are nine helpful bookkeeping tips for small business owners that will help you maintain accurate records and prevent errors that may result in the Canada Revenue Agency (CRA) calling:
Bookkeeping: SMBs should budget for large expenditures
Most small businesses grapple with seasonality and how to navigate the times of the year when demand for your products and services may lull. For example, a Canadian landscaping company may find the winter months particularly challenging. You need to forecast what your organization will need next year and the years ahead. Will you need to replace your computing systems or other office equipment? What about your employee costs when you hit the busy season versus the slower months in your business cycle? By forecasting your expenditures throughout the year, it’s easier to manage what you may need to spend during lean times instead of digging into the profits you earned when times are flush.
Bookkeeping: SMBs should track expenses
Vigorously review your finances regularly, including deposits, withdrawals, and purchases. Doing so will help ensure you don’t miss out on any tax write-offs your small business may be entitled to getting.
Bookkeeping: SMBs should record all deposits
Keep a close eye on your accounts receivable and accurately record all deposits. Whether you do so by pen and paper or use spreadsheet software, it’s crucial to keep tabs on what income you’re receiving all year long. If you can’t account for where your funds are coming from, you may be leaving yourself open to paying taxes on funds that aren’t actual income.
Bookkeeping: SMBs should track sales invoices
Tracking your billing and ensuring your customers are settling their accounts on time as agreed will help you steer clear of a cash crunch. Establish a plan if customers are late paying you, such as issuing a second invoice, giving them a call to gently remind them their account is past due or adding additional fees if deadlines are missed. You’re not in the business of providing interest-free loans or free services, so don’t allow your cash flow to be hurt by failing to ensure your customer invoices are paid on time.
Bookkeeping: SMBs should plan to pay taxes
Set aside the necessary amount of money throughout the year you’ll need to account for the taxes you must pay. Look back at your previous tax returns as a guide to understand what you can expect to hand over to the government. Failing to prepare can result in an unpleasant surprise in the spring when tax season arrives, such as an audit or a significant tax bill that may incur interest or financial penalties from the CRA.
Bookkeeping: SMBs should keep personal and business bank accounts separate
Avoid the mess of mixing your personal finances with your business finances by keeping your business bank account separate from your personal one. Establishing a business bank account is not difficult. Explore your options. Start by speaking to your preferred financial institution about opening an account that doesn’t include banking fees. If your existing bank doesn’t offer business accounts with minimal to no fees for small businesses, contact other banks to find out what they can do for you.
Bookkeeping: SMBs should get errors and omissions (E&O) insurance
Also referred to as professional liability insurance, E&O insurance protects you against claims or lawsuits alleging financial loss due to a service you provided, negligence, or failing to deliver a service as promised. It also covers your legal defence costs if you are sued, as well as any court-ordered monetary judgments or settlements up to your policy limit. E&O insurance usually accompanies other types of business insurance to provide your small business with a comprehensive policy, such as commercial general liability insurance and cyber liability insurance. You don’t want to get hit with a third-party lawsuit that ends up costing you thousands of dollars and threatens the survival of your business. So, include the cost of business insurance in your annual budget.
Bookkeeping: SMBs should use accounting and bookkeeping software
There’s nothing wrong with manually tracking your finances. But there are many small business accounting and bookkeeping software options available to automate certain tasks and make things easier while reducing the risk of errors. Select software that’s designed for small businesses since they’ll provide templates to use that simplify inputting and tracking invoices, deposits, and other expenditures. Furthermore, by choosing a software platform that provides you with secure, offsite cloud-based storage, you can access your data at any time and from anywhere.
Bookkeeping: SMBs should outsource Payroll
It may be worthwhile to hire someone else (or a payroll company) to manage your employee payroll and reduce your administrative burden. If you choose payroll software, ensure it integrates with your accounting software to keep things all in one place. Outsourcing your payroll can help you save time, your employees will get paid on time, and ensures necessary payroll deductions are applied consistently. It also reduces any compliance risks you may face.
Liam Lahey is the Content Marketing Manager at Zensurance, an insurtech that simplifies how small businesses and independent professionals get business insurance. Get a free quote for your insurance needs by visiting Zensurance.com.