New Year’s is coming! Don’t worry, it’s not as scary as winter. And hopefully, it involves champagne. Celebrations aside, I’m sure you’re planning big things for your business in 2018. Those big ideas will take careful project and financial management, which is why it’s so important to make sure your bookkeeping is in tip-top shape. Here are the top seven things you can do to optimize your bookkeeping to reach all of your goals next year.
Get your receipts under control
If you’re not keeping your receipts as part of your records, you’re missing out on tax deductions. You’ll need to keep and record receipts for anything you paid for in cash or for anything the IRS might view as a personal expense. No receipt = no deduction. If you’re keeping your receipts in a shoebox, file folders, or a cute jar labeled “receipts” (thanks for that one, Pinterest), it’s time to go digital.
Our favorite way to keep track of receipts is Receipt Bank. Seriously, go check them out. Use their app to take a picture of your receipts, invoices, or checks and then throw the receipt away. If you receive invoices via email, you can even have your vendors email them directly to your Receipt Bank account. The service integrates with most bookkeeping systems and those systems will automatically attach the receipts to your expenses, making your books audit-proof.
Learn how to reconcile your accounts.
You can enter all the information you want into your bookkeeping system, but if you don’t verify the data, you have no way of knowing whether or not it’s accurate. Bad financial data can seriously mess with your business planning, so it’s important to reconcile your accounts every month. You’ll catch mistakes early as well as notice trends in spending and sales.
In a nutshell, a reconciliation compares your bank and credit card statements to your bookkeeping records to make sure the transactions and numbers match up. Most bookkeeping systems have pretty simple reconciliation tools, so it’s a straightforward, although time-consuming, task. Believe me, it’s well worth the effort. (If you’re looking for more detailed information, check out our Bookkeeping 101 series.)
Review your Chart of Accounts
Are your expense categories working for your business? What are you missing? Do you need more detail? Now is the time to review your Chart of Accounts and make changes to improve your spending records.
Take marketing, for example. Let’s say you only have one category for all promotional costs, labeled “Advertising”. If you’d like to know how much you are spending on Linkedin vs Google Adwords or Facebook vs Twitter, create sub-accounts under Advertising for each type of ad spending you’d like to track. This will help you determine the ROI for your promotional spending. You can easily do this for multiple expense categories without over-complicating your bookkeeping.
Start keeping a journal
No, not about your feelings. I care about your feelings, but the IRS doesn’t. What the IRS does care about is proof regarding how and where you spend your money. This means you need to document every business meeting, business meal, and travel expense throughout the year. This is important to help verify your tax-deductible expenses.
The journal can be handwritten or a digital calendar. The important part is that you start keeping records of EVERY meeting. Yes, even last minute coffee dates with clients—especially if you plan on deducting those expenses under Travel & Entertainment. It might seem trivial now, but if you get audited, having accurate and complete records of meetings and business trips will save you time, money, and a huge headache. (Want more info on T&E expense guidelines? Download our guide.)
Pay any outstanding bills
Review your Accounts Payable and pay as many outstanding bills as possible before the end of the year. Why? Because you can deduct those costs from your business taxes. If you’re an LLC or Sole Proprietorship, you’ll also pay less in self-employment tax because you reduce your profit margin and personal annual income.
If you have cash available after you pay your bills and want to find ways to invest in your business, pay for services in advance for 2018. This will help keep you in the good graces of your vendors and allow you to deduct even more from your taxes this year.
Streamline your invoicing
Following good invoice practices can really help improve your cash flow. Define standard service and/or product terms and fees, billing cycles, and payment reminders. Most online bookkeeping platforms also offer automated invoice creation and online collections.
By employing these practices, you’ll be able to bill your customers consistently and accurately, and will be more likely to get paid on time. Remember, only 26% of invoices over 90 days old are collectible, so it’s in your best interest to make sure none of your clients slip through the cracks. (Need more help? Read our blog covering the 5 steps to perfect Accounts Receivable.)
Hire a bookkeeper
I know this sounds self-promotional (and let’s be honest—it is) but hiring a bookkeeper is the number one thing you can do for your business this year. Ask yourself these questions. Why did you start your business? What are your biggest goals and challenges for 2018? Do you want any of those to involve spending hours handling your own bookkeeping?
At Digit Keeper, we outsource all the time so we can focus on the things we love best. I love bookkeeping systems and operations, my family, and photography. Our CMO loves building our brand, cooking, and writing. Our President loves computer games, reading, and accounting (yes, in that order). And the list goes on.
We know our strengths and passions and structure our business to be able to pursue them. We can help you do that, too. Get in touch with us to learn more.