Step-by-Step: How to Manage Your Own Bookkeeping
Bookkeeping may seem like a pretty straightforward process, but like many things in business, it is anything but. Bookkeeping has many facets and working with a professional will help you access additional benefits. If you want to venture into bookkeeping on your own, though, here are five tips for getting started:
Separate Your Finances
For tax auditing purposes, it’s important to keep your accounts separate. Don’t make personal transactions with a business account and don’t make business transactions with your personal account.
Separate accounts make it easier to understand where all of your money is coming from and where it’s going. More importantly, mixing your finances can expose you to business liabilities.
Record Every Transaction
Recording all transactions will help you separate revenue and profit. You’ll be able to see exactly what you’re generating for expenses each month and with this knowledge, shop around for services that will help you save money.
Separating your transactions also means you’ll be able to clearly organize tax-deductible expenses.
Categorize All of Your Transactions
This is the key to reducing your tax bill and maximizing deductions. Categorizing transactions will help you create reports to determine exactly what transactions can be considered for tax deductions or credits. In order to avoid a tax audit, it’s best to keep your finances organized with categories. Categories help the IRS understand exactly how you’ve calculated your taxable income and deductions.
Organize and Store Financial Records and Paper Documents
We live in the age of paperless storage. Almost everything is done online – your entire business may be online. By utilizing accounting software, you’re able to store paper documents and receipts by scanning and uploading them right to your account. According to the IRS, you must store all financial information for a minimum of three years.
Consistently Track and Review Your Books
Create a routine for managing your business finances. Set aside some time daily or weekly to go through the books and organize transactions, receipts, and other documents. When you access your financial information frequently, you have a better idea of the overall wellness of your business.
Ready to become your own bookkeeping warrior? Great! Before you dive in head-first, keep in mind that bookkeeping is not accounting – even though they both serve to help you get a clearer picture of your business’ financial health. Learn the difference between bookkeeping and accounting here.