3 Business Bookkeeping Tips to Start the New Year Fresh

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Whether you are someone who loves or loathes setting New Year's goals, it's a good time get a refresh on some key bookkeeping tips! Here are a few easy ways to make 2018 a little less frustrating when dealing with your company financials (and maybe save some money at the same time)…

Review Dues and Subscriptions

It's a good idea to do periodic reviews of those pesky monthly subscriptions. Is there a software you have been paying $9.99 per month for that you never use? Often small business owners can find savings by canceling unused monthly charges. 

Ask Your Vendors to Give Statements

If you have vendors that regularly bill you with net terms, it is a good general rule of thumb to not pay until they supply a statement. This helps keep you and your vendor on the same page in terms of costs, outstanding bills, and due dates. It also serves as a cross-check on bill payment accuracy. 

Create a Bare-Bones Budget

I recommend creating a bare-bones budget for two reasons:

(1) To save for a business emergency fund - having three month's worth of necessary expenses saved takes a weight off your shoulders. 

(2) To save for taxes - you can budget in a monthly tax savings (yes, this should be a necessary business expense), don't wait until the last minute to set aside tax money!

There you have it! Three simple tips to make your life less hectic when tackling the most exciting part of owning a business - the books. ;)
 

What is the Difference Between Cash and Accrual Accounting?

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You've probably heard of these two terms when researching small business bookkeeping... accrual-basis and cash-basis.

All business owners must decide when starting their company whether they want to use the cash method or the accrual method for reporting their financials. I am here to give you the breakdown between the two. 

CASH BASIS BOOKKEEPING

The simplest method. Best for very small businesses with straight-forward sales or personal bookkeeping. Not ideal for analyzing complex income and expenses month to month.

The cash accounting method essentially records income as it is deposited into your bank account, and records an expense as it is withdrawn from your bank account.  There is no ‘real’ A/R or A/P when using this method, everything is based off of cash-in and cash-out and recorded immediately. 

This can be a drawback when you want to review your monthly P&L report since it will not be a TRUE representation of what you make or spend in a month. This is because you might get paid for a job in May, but not actually do the work until June. On a cash-basis system the income will be shown as May income. 

* This is the category that MOST small & medium businesses will fall under. 

ACCRUAL BASIS BOOKKEEPING

More involved method. Best for large businesses who want to analyze their financial data and profitability.

The accrual accounting method records income and expenses as they occur, not when cash is moved.  Simply put - this means that if you get paid for a sale in May, but do not deliver the product until June, you do not get to claim the income until June. This is because no transaction occurred during May - only cash was deposited. 

Note that it's important to ALSO manage cash flow at the same time while using the accrual method because it does not accurately represent how much money is actually in your bank account at any given time. We can see this in the example above. 

Accrual gives you better insight for budgeting and analyzing. Lenders are more willing to let you borrow because you show consistent income. It will also let you see the best times of the year to do marketing campaigns based on previously trending high sales months/seasons. In addition, your business can accrue expenses over time instead of taking one big hit. 

SUMMARY

At the end of the day, it really is dependent on your specific business and business plan. There are advantages and disadvantages to both, so it is best to consider carefully when starting your business! 

-Adrienne