Majority of small business owners do bookkeeping for their businesses themselves. Undoubtedly, you should have some basic knowledge of bookkeeping to maintain the inventory, expenses and cash flow, and make accurate entries. We are sharing some comprehensive DIY budgeting tips and techniques to help novice small business owners in accurate bookkeeping and budgeting.
It may be challenging to plan and maintain budget during unexpected events, cash flow problems, and any unforeseen incidents. You cannot stop such events, but you can handle these situations better if you handle your business accounts properly. A business can never be static, and your budget should not be either.
Steps to Do Bookkeeping for Your Small Business
Every business should monitor present and future cash flows. Improper, unmanaged and uncontrolled budgeting can make even a profitable business to go under because it does not have proper budgeting to meet its financial obligations.
Enter the current balance of all of your financial accounts in a ledger. Many businesses keep separate accounts for different activities such as account for cash on hand, one account for rolling revenues and expenditure, one ancillary account to manage funds and more. If you find it difficult to keep records on computer, use paper to enter detail temporarily, and make the entry once you get time. You may also use accounting software for bookkeeping.
Record all payments you have made from your different financial accounts in the ledger. Enter the payment with date, payee, category, memorandum, and a record of the check number if you have used check to make payment.
Record all payments you have received for any reason, excepting loans and investment funds. Maintain a separate ledge to record loans and investments, and make sure, you should not book it as revenue. Incoming payment or revenue is recorded with similar columns viz. date, payee, category and memorandum.
Once you streamline your income and expenses, create an upcoming payment schedule. All future payment expected to generate by your business such as rent, utilities or any other recurring payment should be recorded in your account payable. In case, there is some upcoming one-time expense, you can also use this ledger to budget them. For instance, if you are planning to spend $4,500 on renovation in December, you can book it as $1000 set-aside for the months of July to November.
Create an upcoming payment received schedule, which is called Account Receivable. Ledger plays a vital role in processing invoices to your clines and therefore, if you do not receive payments until clients actually release the check. If you are using automated accounting software, make sure that AR payments do not automatically roll over into actual payments received ledger.
Merge your ledgers with your bank statement. Here, accounting software can be a great help because software will automatically download your bank records and allow you to quickly mark which payment and deposits are already recorded in your ledger. It is generally done on a monthly schedule.
Why Budgeting Is So Important?
Budgeting is imperative to the successful operation of your business. It helps in managing your cost, determine your profit goals and keep you on track to accomplish your business goals. A budget is a detailed plan of future expenditures, and payments. Let us understand with an example. If you do bookkeeping for your business, by looking at next quarter’s budget you can anticipate peak periods and schedule your stock and labor accordingly to handle your future sales volume. You can plan your marketing activities, vacations and inventory during slow periods.
Update Your Budget on Monthly Basis
The moment you decide that you will prepare budget for your business on your own, make sure you update it monthly. It is not a one-time job, and therefore, make sure you are determined enough to handle it. Revise your budget on a monthly basis based on your business performance and expenses of the last month.
Look at anticipated sales to figure out indicators that need you to change budget to cover additional inventory or staffing requirement. Look at your expenses- Are they as projected or you have to cut back to stay on track.
Depending upon your monthly review, you should make changes to have a positive impact on your income and profits. For instance, it is possible you are spending less than expected in marketing. Adjust your budget and see what happens next month or over a six-month period. In next review cycle, check if you are getting good return on extra dollars spent per sales lead.
Respond to Unexpected Changes
Use your budget to handle the unexpected changes. For instance, if one of your important clients cut their own budget and cut back the amount of business they do with you. Check your budget to figure out how much this deduction affects your cash flow and how long it would take you to find a new client to replace that important revenue source.
It is imperative to keep a track of everything happening in your business to handle unforeseen emergencies effectively. If your budgeting is accurate, you will be left with funds to run your business during hard times without any hassle.
Even though, we have shared the basics of bookkeeping and budgeting to help small business owners to manage finances on their own without any professional help. As numerous businesses are doing this, there are some common mistakes that they commit and end up with jeopardizing their businesses.
We are sharing some common mistakes that small business owners generally do during budgeting and booking. Look, and make sure you learn from their mistakes, and avoid them while doing it yourself.
Common Budgeting Mistakes That Small Business Owner Commit
One common mistake is not doing any budgeting at all. Instead of recoding, they store all income and expenses in a box file or shoe box, and forget. Bookkeeping is the only way to keep tracks of everything and be in control.
Businesses usually hesitate from using accounting software as they see it as a difficult, unreliable tool, which is untrue. There are many online accounting software available free of cost to help you in bookkeeping. At least, you can use them to set up a format or pick up an accounting format for your small business. Using accounting software can really save your time and money.
One biggest reason of small business failure is they do not separate accounts for business finances and personal finances. You are simply making it more difficult by mixing your personal and business finances. You would need separate detail when it comes to tax return time.
Small business owners do not file bank statements in order. It is possible that you miss one bank statement if you are not filing them properly. You can get it bank by exploring your online banking records, but you have to spend huge time on phone to back to get replacement statements sent out, and it would create unnecessary delay.
Not having a file system at all for purchase invoice is a common mistake. You should organize and file up your purchase invoices to keep track of incoming payments.
Business owners make payment in cash, not by card or transfer. By paying through card or transfer, your bank will do the bookkeeping for your business free. When you pay through online transfer or cards, a permanent record of the transaction is provided on the bank statement, including the detail of the date, amount and recipient’s name.
Not numbering sales invoice sequentially, which make them lose the track of dates by which invoices should be paid. In such a situation, you have to establish an efficient system to find out overdue invoices.
If you are doing budgeting for your business on your own, make sure you keep track of payments, invoices. Proper organization of invoices and accounts are the key to successful and accurate budgeting.
Author Info Manish Khanna
Manish is founder of Business2sell Group of Websites.
Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities.
With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent.
I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.