Running a small business can be both exciting and challenging. At the core of every business, the goal is simple: to generate profit. But as many business owners know, consistently growing that profit is often easier said than done. Let’s dive into your business and discuss strategies that can put more cash back in your bank account. 

Words to know before we get started: 

• Income: Cash that is brought into your business whether by providing a service or selling an item(s).
• Expenses: Payments for ordinary and necessary services or materials used to run your business.  
• Profit: Money that is left over at the end of the month once all income is accounted for and all expenses are paid. 

Analyze Your Spending

This sounds like a no-brainer, but this initial step can change the whole trajectory of your business. Here is what you are going to do: sit down with at least 3 months of bank statements or transactions (notice I did not say financial statements) and an excel or google sheet (whatever is your preference). You can click this link to grab the sheet I have created, feel free to edit categories or add as needed!  I want you to review each transaction, determining which, if any, are recurring. Any recurring expenses that can be deactivated due to inactivity, get those canceled! $9-$14 doesn’t sound like a lot each month, but over the course of a year those savings will add up! For the remainder of the expenses, upload the transactions pulled from your banking website into the spreadsheet. Begin to categorize each transaction, and understand your full financial picture. 

You may be saying, “Lexi, I don’t have time for this!” and to that, here is my rebuttal: Make time. Plain and simple. 

If you are serious about the financial health of your business, this will be important to you. Whether you are trying to save your business on the verge of closing its doors or brainstorming how to grow, this step is crucial. 

Deep dive into your spending

Once you have all transactions reviewed and categorized, you should have a clearer understanding of where your money is going. You may be thinking, “wow, I used meals an awful lot over the last 3 months.” This is good. Often this is the wake up call we need to reform our current spending habits. Move over to the summary tab on your spreadsheet. Here is where you can see the total spent for each category. Here is where the questions can begin to flow: (1) Are you spending too much in any given category? (2) Could you negotiate with vendors to decrease costs, maybe on volume? (3) What expenses can I reduce and see little to no change in business as usual?

Some costs you won’t be able to reduce, and that is okay. Keep a pulse on them and review ever so often. These categories include things like payroll, materials, and technology. Just make sure that if these costs are increasing, so should your revenue. 

Increase Revenue

After a full review of your expenses, you may still be coming up short. If cutting unnecessary expenses still leaves you in the red, the next step is to look at income. While expenses can normally produce a quick return, income sometimes tends to take a bit longer to see results. Here are some ways to increase your income: 

Create a new product or service to sell to existing customers. Your current customers should already trust you, so this should be the path with least resistance. 

Review your current offers or items and make sure they are at market price. Depending on contracts, this can be a quick way to increase your profit. If you have not reviewed your pricing in a while, I highly recommend taking the time to complete market research and ensure you are getting fair compensation for the services provided.

Introduce a new revenue stream into your business. This could be affiliate marketing, a course, a membership, or 1-on-1 coaching. 

Monitor your metrics

The financial landscape of your business is an ever-changing system. You should, at minimum, be reviewing reports provided by your bookkeeper on a monthly or quarterly basis. In your cash crunching era, here are some metrics to watch: 

Gross profit margin: This tells you directly how much revenue you have left after deducting the cost associated with your offer (COGS). For example, if you are a Plummer your COGS would be the pipe + materials immediately associated with your work performed. If your gross profit margin is consistently low, it could mean that you are under charging for your services. 

Net Profit margin: This number is what is left over after all expenses have been deducted from your revenue. If this number is low or even negative, it could mean that your overhead costs are too high. Another example using that same Plummer, if the Plummer is seeing a low net profit he could be spending too much on rent, using too much fuel to get to jobs, or something else. 

Understanding your numbers

It is worth noting that sometimes you may have a net loss in any given month and that is okay as long as it is not recurring. Using Mr. Plummer man again, if he purchases an annual subscription to his CRM in July, his July numbers may show lower than normal months or even a loss, but as long as his overall cash flow is positive, it is okay. Knowing this, I try to always look at the big picture, but also pinpoint why those negative months are there and discover what is causing them. 

Business finances are not scary and they don’t have to be hard. Employing an accounting system can save you time, and a bookkeeper can help pinpoint areas to help save on expenses or help create a roadmap to increasing your revenue. Continually reviewing your business’ financial position will lead you to a greater understanding of your position and expose potential savings. If you are in the weeds of increasing profit, know that you are not alone! I hope that these tips were helpful, and you are able to grow + increase your small business profit. 

No matter what your goals are for your small business, ensuring you have the cash flow available is crucial. Remember: consistent small savings can add up to significant gains over time.

Want to dive a step further into your business profits? Click here to get access to my Path to Profit workbook where we walk step-by-step together for 5 days and increase your profit + outline your small business goals!

The post Grow your bottom line first appeared on Lexi Vance-Service Based Bookkeeper.

As a small business owner, you know (if you don’t; listen up!) that bookkeeping is the backbone of financial success and business growth. Accurate data and regular review ensures your business is on track to meet its goals. Healthy financials are not just to wave around, they confirm that you have adequate cash flow to manage daily business activities. Your month end process is an important step to gauging your businesses health, and can alert you to any red flags (hopefully) before they are a problem!

 

Understanding the Importance of Month-End Bookkeeping

Why Month-End Matters for Your Business

Month-end bookkeeping isn’t just about dotting the i’s and crossing the t’s! Bookkeeping is about gaining insights into financial transactions, cash flow, and analyzing business development. The month-end process lays the foundation for informed decision-making within your business!

Step-by-Step Guide to Month-End Bookkeeping

1. Reconcile Bank Statements:

Start your month-end by reconciling your bank statements. If you are using an accounting software that is connected to your bank, this is as easy as maneuvering to the transactions tab and reviewing + adding your prior months transactions. If you are using an excel spreadsheet, download your transactions from your banking institution and add to your file.

If you don’t have any accounting system for your small business, BARE MINIMUM grab my free excel sheet. You can customize to your small business and don’t have to spend hours in excel leaning how the dang formulas work yourself!

 

Once all your transactions are added and categorized, grab your month end closing statement. You will want to check your beginning balance, enter your ending balance as well as the statement close date. If you are using an accounting system, you will then navigate to the next screen where you will ensure all income/expenses are accounted for, and nothing is missing.

 

 

If you are using a spreadsheet (hopefully mine!) you will also want to grab your bank statement and ensure that all income/expenses you uploaded into your file are complete and correct according to your bank statement.

 

 

Reconciling ensures that your records align with actual transactions in your accounting system or your spreadsheet. If you have run into a snag and need additional help, check out my thorough post on how to reconcile like a pro here!

 

 

2. Review Income and Expenses:

 

 

This is one of my favoriteee parts! I know, I know. I am a total geek when it comes to numbers! Run your profit and loss report. First, review the single month end and look for anything that looks to be incorrectly categorized.

 

 

Next, run a 12 month Profit and loss.

 

 

 

 

This comparative report gives you a birds eye of your business. From here you can discover if expenses are tracking upward, revenue is seeing a downturn, or if you have higher than usual spending in any given category. There is sooo much data that can come out of looking at your business from a comparative level. You can also quickly identify reoccurring transactions when looking across multiple months. Dive into your income and expenses and become familiar with the costs associated with running your business.

 

 

3. Look at Accounts receivable & Accounts Payable:

 

 

Not all businesses use AR & AP. If your business is strictly cash basis and does not utilize these departments, skip to the next step. If you do have AR & AP, listen up! AR & AP is one of the messiest accounting functions I see when onboarding new clients or preforming a clean up service. If you are not correctly applying payments to invoices, you can quickly create a problem. When you invoice customers, make sure their payments are being applied to the correct open invoices. Same goes with AP. When you pay vendors, make sure that the transaction coming through the banking feeds are being allocated to the bill payment so you are not doubling your expenses.

 

 

If you are concerned with the current state of your AR or AP, reach out to a professional before you begin deleting or voiding or changing anything! Edits in prior years can cause tax issues if not handled correctly. I’m here if you ever have any questions or want a second set of eyes on your books.

 

 

Sorry for the impromptu rant. Now, back to WHY you need to ensure your AR & AP are correct at month end. Using AR & AP as a gauge, you can determine cash flow and ensure you have dollars available for necessary expenses. With a quick review, you can also discover who has not paid their invoices or who has an overdue balance. AP helps you understand when bills will be coming due to ensure you have capital to pay outstanding debts.

 

 

4. Verify balance sheet accounts:

 

 

The balance sheet is an under utilized report that NEEDS to be kept up to date. You balance sheet gives you a snapshot of the following:

 

 

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• • Your Cash position and liquidity

 

 

• • Your debts owed

 

 

• • Your equity invested

 

 

 

The Asset section of your balance sheet shows you how much cash you have on hand, what assets you have, and who (if anyone) owes you (think AR or any loans outstanding). You want to make sure all liquid accounts are reconciled at month end–checking, savings, etc.

 

 

If you have any debts, balances due on bills (AP), or credit cards those will show up in your liability section. You need your loan statements to allocate principal & interest on all loan payments made during the period. This is important because while the principal balance of the loan is NOT an expense, the interest is. Reconcile all loans, credit cards, & intercompany payables monthly.

 

 

Finally the equity section show a snap shot of what you have withdrawn or invested from your business. Draws are owner payments, while contributions are owner deposits into the business. The retained earnings account shows the overall long term health of a business.

 

 

A review of your assets and liabilities ensures your balance sheet reflects your business’s true financial position. Look for discrepancies or unusual trends. Compare book balances to bank balances on all bank accounts, credit card accounts, and loan accounts.

 

 

Closing Thoughts: Your Month-End Success Blueprint

 

 

Yay! You’ve mastered the month-end bookkeeping process. By integrating these steps into your routine, you’re not just managing finances; you’re steering your business toward sustained success!

The post Mastering Month-End first appeared on Lexi Vance-Service Based Bookkeeper.

Technology and Software Maintenance

In today’s digital age, technology is a backbone for businesses. The costs associated with maintaining software licenses, updates, and cybersecurity measures can add up! Investing in reliable technology is crucial! Technology and software creates efficiency throughout your small business that you can’t afford NOT to have!

Deductibility: Small business technology and software is 100% deductible.

Training and Professional Development

Employee training and development is vital for business growth. Often, the costs associated with workshops, courses, and certifications are overlooked. Investing in your team’s skills not only improves productivity, but also contributes to the overall success of your business. 

When drafting your small business budget, make sure to include a professional development expense for trainings and certificates that could be assets to your business!

Deductibility: Small business training expenses and employee development costs are 100% deductible.

Regulatory Compliance Cost

Staying compliant with regulations is a non-negotiable for small businesses (if you want to stay in business)! The costs of compliance can include legal fees, annual fees, miscellaneous fees, and possible fines. Compliance can include state or federal regulations that must be honored by your business. These fees are often underestimated and are all deductible for your small business. 

Ensuring your bookkeeping budget includes provisions for unforeseen compliance expenses is a must!

Deductibility: Legal fees for businesses and compliance fees are deductible 100%.

Marketing and Advertising Expenditures

While many small businesses understand the need for marketing, the full scope of expenses may be underestimated. Marketing and advertising costs can consist of online advertising, content creation—both deliverables or services provided, and promotional materials—both digital or physical. Marketing can impact your budget significantly. In fact, for most small businesses, marketing is 3% of their gross revenue annually.

It’s essential to have a clear picture of your marketing spend for accurate bookkeeping and budgeting for future years or upcoming launches!

Deductibility: Small business marketing and advertising expenses are 100% deductible.

Employee Turnover Costs

Small businesses regularly exclude employee turnover expenses from their bookkeeping, leaving money on the table! High turnover rates can incur substantial hidden expenses. Recruiting, onboarding, and training new employees require time and resources, as well as subscription fees and platform expenses. Consider these costs when budgeting and strive to create a work environment that fosters employee retention to minimize turnover, thus reducing expenses. 

Indeed, for example has several fees when posting a job.

Deductibility: Employee turnover/retention costs are 100% deductible.

Effective bookkeeping is not just about recording the obvious expenses; it’s about anticipating and accounting for all potential costs. By acknowledging and budgeting for these often overlooked expenses, small businesses can ensure financial stability and long-term success!

Want my list of deductible business expenses to ensure you are not leaving anything out of your books? Click here to snag it!

The post 5 Overlooked Expenses first appeared on Lexi Vance-Service Based Bookkeeper.

In this guide I am going to share with you my personal favorites and price/capacity for any small business at any stage of growth!

**This post contains affiliate links.**

Excel Spreadsheet

An excel spreadsheet for accounting is ideal for side hustlers, solopreneur start ups, or any other business with few, uncomplicated transactions. Click below to download the excel spreadsheet that I use for my small business clients! A spreadsheet caters to small businesses who don’t have the budget for an accounting subscription. It is also ideal for someone that have very few transactions.

With the Excel method, you want to grab your business bank statements and enter each transaction with a category (or download a CSV file and import if your bank has that capability), which will build out your P&L.

Price: FREE

QuickBooks Online (QBO)

QBO has several pricing options and extras available for your business at each stage of growth. Below, I am going to highlight my favorite subscriptions offered. These could be great alternative for your business!

It is worth noting, I spend almost all of my client time in the week working within QBO!

Simple Start

Simple Start is ideal for clients that need to be able to invoice their clients, collect sales tax, manage 1099 contractor data, and run basic or customized reports. It is the lowest subscription level in QBO, and is perfect for a small or growing business!

Price: $30/month

Another note, If you choose a plan and it is not right for your business, you can upgrade and downgrade at any time!

Plus

Plus is idea for a growing business. If you need the ability to track by project or class; Plus may be the way to go. As per usual, QBO Plus also offers all the benefits of Simple Start. Plus is great for medium to large businesses and also has the ability to integrate with QB Time, to add an additional layer of cost analysis to your projects!

Businesses with Inventory will need to utilize the Plus subscription, as there is no ability to track inventory in Simple Start. You *COULD* use a spreadsheet to track inventory, just be cautious and consistent on whatever method you choose, FIFO or LIFO.

Price: $90/month

If your interested in getting a QBO subscription at a discounted rate, click here! Let me know in the comments if you have any questions! Or head over to the contact page and reach out if you need an expert to help!

Need help reconciling your books with QBO? Check out my post here with all the details on how to reconcile like a pro!

The post Accounting Software You Need first appeared on Lexi Vance-Service Based Bookkeeper.

What is the Accounting Cycle?

The accounting cycle is a series of steps that businesses follow to record, organize, and report financial transactions. This process helps maintain accurate financial records, ensure compliance with regulations, and make informed business decisions.

Step 1: Identifying Transactions

The cycle begins with identifying and documenting all financial transactions that occur within the business. This includes sales, purchases, expenses, and any other monetary activities. This can be done on daily, weekly, or monthly.

Step 2: Journalizing

Once transactions are identified, they are recorded in a journal. The journal is like a diary that chronicles each transaction, including the date, description, accounts involved, and monetary value.

If you are using Quickbooks Online, this step is completed when transactions are pulled into the banking screen.

Don’t forget to reconcile all balance sheet accounts! I have an easy to follow guide here for reconciling!

Step 3: Posting to the General Ledger

The general ledger is a central hub where all transactions recorded in the journal are categorized into specific accounts. Each account represents a financial element such as assets, liabilities, equity, income, and expenses.

If you are struggling with understanding the accounting equation (assets = liability + equity) here is an article to reference!

If you are using Quickbooks Online, this is when you ACCEPT the transaction in the banking screen.

Step 4: Preparing the Trial Balance

With transactions posted, a trial balance is compiled. This is a summary of all the debit and credit balances in the general ledger. The trial balance ensures that the books are in balance, meaning the total debits equal the total credits.

This is how the accountants make sure transactions are recorded correctly. With the rise of automated technology, this step has become somewhat obsolete and the report can be generated with a click of a button!

Step 5: Adjusting Entries

To reflect accrual accounting and ensure accuracy, adjusting entries are made. These entries address items such as prepaid expenses, accrued income, and depreciation. Adjusting entries ensure that financial statements accurately represent the business’s financial position.

Most small businesses use CASH basis accounting, meaning income and expenses are only realized once collected.

Tax preparers will share year end adjusting entries once returns are complete and can be entered manually.

Step 6: Preparing Financial Statements

Now comes the creation of the financial statements: the balance sheet, income statement, and cash flow statement. These documents provide a snapshot of the business’s financial health, detailing assets, liabilities, equity, income, and expenses.

Reports can quickly and easily be generated in Quickbooks Online with the push of a button! Reports are to be reviewed by management prior to any

The post Accounting Cycle Basics first appeared on Lexi Vance-Service Based Bookkeeper.

**This post contains affiliate links. All products recommended are tools/software I use daily!

When it comes to managing your small business’s financial transactions, selecting the right accounting method is crucial. Two methods of recording financial transactions are cash basis and accrual basis. In this blog post, we’ll explore the key differences between these methods, their advantages and disadvantages, and help you determine which one might be the best fit for your business.

Most accounting software’s available today have the capability to use either cash or accrual accounting.

Quickbooks Online has the ability to convert from accrual to cash basis by the click of a button!

Cash Basis Accounting for Small Businesses

How It Works

Cash basis accounting is straightforward. Revenue is recorded when received, and expenses are recorded when paid. This method is ideal for small businesses with simple financial transactions. Accounts payable and accounts receivable are two examples of accounts that would NOT be used in cash basis accounting.

Advantages

• Simplicity: Cash basis accounting is easy to understand and implement, making it suitable for small businesses with limited financial resources.
• Cash Flow Management: It offers a clear picture of the actual cash available, making cash flow management more straightforward.

Disadvantages

• Limited Accuracy: This method doesn’t account for future income or expenses, potentially leading to inaccuracies in long-term financial planning.
• Tax Complexities: In some regions, cash basis accounting may not comply with tax regulations, limiting its use for certain businesses.

Cash basis accounting is used for the majority of small businesses.

Accrual Basis Accounting for Small Businesses

How It Works

Accrual basis accounting records revenue when earned and expenses when incurred, regardless of when cash changes hands. This method provides a more comprehensive view of a business’s financial health.

Advantages

• Accurate Financial Picture: It provides a more accurate representation of a business’s financial health, especially for companies with significant credit sales or long-term projects.
• Tax Benefits: Accrual basis accounting can sometimes provide tax benefits by allowing businesses to deduct expenses when incurred, even if not paid.

Disadvantages

• Complexity: It can be more challenging to implement and maintain, requiring a solid understanding of accounting principles.
• Cash Flow Management: This method might not reflect a company’s immediate cash position accurately, which can be a challenge for small businesses.

Choosing the Right Method for Your Small Business

Considerations

1. Business Size: Small businesses with straightforward transactions often find cash basis accounting more suitable, while larger, more complex businesses tend to benefit from accrual basis accounting.
2. Tax Implications: Consult with a tax professional to determine which method aligns with tax regulations in your region.
3. Industry: Certain industries, such as construction and manufacturing, may favor accrual basis accounting due to long-term projects and multiple revenue streams.
4. Financial Goals: Assess your business’s long-term financial goals. If precision and forecasting are crucial, accrual basis accounting may be a better choice.

Selecting the right accounting method is an important decision that can impact your financial management and reporting. Both cash basis and accrual basis accounting have their merits, but they cater to different needs and business scenario.

Click over to Bookkeeping Essentials for Beginners for some additional tips.

The post Accounting Methods first appeared on Lexi Vance-Service Based Bookkeeper.

Financial statements are the backbone of assessing a company’s financial health. These documents provide a clear snapshot of a business’s performance, position, and cash flows. In this post, we’ll dive into the different types of financial statements, discuss their importance, and examine how they work together to present a comprehensive view of a company’s financial status.

Three Types of Financial Statements

1. Balance Sheet

First we have the balance sheet, AKA the statement of financial position, which offers a snapshot of your small businesses financial position at a specific point in time. It lists assets (Bank accounts, Land, property, equipment), liabilities (Loans, payables, taxes due), and shareholders’ equity (owners cash put in or drawn out). The Balance sheet provides insights into what your small business owns, owes, and how much is invested.

TIP: Balance sheet accounts including bank accounts, credit card accounts, and loan accounts should be reconciled monthly or quarterly, depending on frequent statements are issued. Here is a great post on how to reconcile like a pro bookkeeper.

2. Profit & Loss (P&L)

At number two–The P&L, outlines your small businesses revenues (money brought in), expenses (money spent), and resulting net income or loss over a specific period. This statement helps assess your businesses profitability by detailing its revenue sources and cost structure.

The P&L should be reviewed monthly in some form. A few great P&L’s to run and analyze monthly are:

(1) Monthly P&L compared to Year-to-Date, (2) Monthly P&L compared to prior year, (3) Monthly P&L by Class (if applicable)

3. Cash Flow Statement

This statement is used less than the above two, but its importance for management and decision making are high. The cash flow statement tracks the movement of cash into and out of a company during a specific period. It’s divided into three sections: operating activities, investing activities, and financing activities. This statement provides a clear understanding of a company’s ability to generate and manage cash.

While the Cash Flow Statement is an official accounting report, there are many ways small businesses engineer a “Cash Flow” report that works for their company.

How the Statements Work Together

The financial statements can exist and be interpreted stand alone. But for a full company picture they must be presented together. Together they work to present a comprehensive financial picture. Below are the direct relationship each report has to one another:

Balance Sheet and Income Statement Relationship: The net income from the income statement directly affects the equity portion of the balance sheet. The balance sheet provides context for the income statement, showing the impact of net income on the overall financial position.

In non-accounting terms, at year end the net income (loss) on the income statement will be moved to the equity portion of the balance sheet so your income statement zeros out for a new year.

Cash Flow and Balance Sheet Interaction: The cash flow statement and the balance sheet are interconnected. Changes in cash reflected in the cash flow statement impact the cash balance on the balance sheet, demonstrating the relationship between cash flows and liquidity.

Again, in human language, the cash flow statement takes into account balance sheet transactions (loan payments) to show a true picture of cash flow in and out of your small business.

Insights from All Three Statements: When analyzed collectively, these statements offer a 360-degree view of a company’s financial performance, position, and cash flows. This holistic perspective aids investors, creditors, and management in making informed decisions.

Significance of the Financial Statements

Finally, lets discuss the significance of the statements and why they are important. After all, just because you can generate them and interpret them, shouldn’t you know why?

Transparency and Accountability: Financial statements provide transparency into a company’s financial affairs, fostering trust among stakeholders.

Informed Decision-Making: Investors and creditors, along with managers or owners, rely on these statements to assess a company’s creditworthiness and potential for growth. Small business owners often times us the statements to justify capital purchases or business expansions.

Business Planning: Financial statements guide strategic planning and help identify areas for improvement or growth opportunities. For most small businesses, this is true. Small businesses can review profitability and liquidity with accurate financial statements.

Legal Compliance: Companies must prepare accurate financial statements to meet legal and regulatory requirements. Small businesses need accurate statements and bookkeeping for year end tax preparation.

Financial statements serve as a compass for your small business. Decision makers must rely on the data presented in each statement and guide the business down the best road possible. Whether you’re a business owner, investor, or financial analyst, understanding these statements is essential for informed decision-making and assessing the overall health of a business.

Interested in an accounting system that can generate these statements with a click of a button? Check out Quickbooks Online, my tried and true accounting software for my small business and all my clients. If you are unsure what accounting software is right for your small business? Check out my post on accounting software options for small businesses!

The post Accounting Statements first appeared on Lexi Vance-Service Based Bookkeeper.

In the crazy world of entrepreneurship, small business owners often find themselves juggling multiple roles to keep their ventures afloat. Amidst the hustle, it’s easy to overlook the foundational aspect that can significantly impact a business’s success: bookkeeping. In this blog post, we’ll jump into the importance of bookkeeping for small businesses and uncover why it’s an essential practice that should never be overlooked.

Financial Health

First things first–at the heart of every successful business lies a clear understanding of its financial health. Bookkeeping provides the foundation for this understanding. Accurate and organized financial records allow small business owners to track income, expenses, and profits with precision. This information is invaluable when making critical decisions about pricing, investments, expansions, and more. Without proper bookkeeping, you’re navigating your business in the dark, potentially making choices that could lead to financial instability.

Using an accounting system takes the hard work out of recording and analyzing data. Here is a great article on a few great options to consider.

Compliance

Another hurtle for small businesses is compliance. While these tasks seems small and unimportant, the IRS is not your friend and will not forgive you if “you forgot.” Bookkeeping helps track taxes due for payroll taxes, sales taxes, estimated taxes, franchise taxes, etc. Setting up an accounting system takes most of the dirty work out. My preferred cloud based system is Quickbooks Online and it is relatively easy to use.

Proper bookkeeping ensures that you’re in compliance with these obligations. Tax authorities and regulatory bodies often require accurate financial records to ensure that your business operates ethically and transparently. Failure to meet these obligations can result in penalties, legal issues, and reputational damage that can be detrimental to your business’s growth.

Cash Flow

One of the biggest pain points most small businesses have is due to cash flow. Cash flow can be caused by growing pains and timing pains.

Growing pains is when the business makes a substantial investment–maybe in new equipment, labor, or facilities, and they have not produced any revenue from the added expense. This is when small business owners may turn to investors, lenders, or potential partners to help fund the venture. Often these third parties require a clear understanding of your businesses financial performance before getting involved. Proper bookkeeping allows you to generate accurate financial statements, showcasing your business’s profitability, assets, and liabilities. This transparency builds trust and credibility, making it easier to attract external funding or strategic collaborations that can propel your business forward.

Timing pains is due to vendor vs customer payment terms. For example, your vendor requires a payment in advance for goods or services, but you cannot invoice your customer until the job is complete. This creates a negative cash flow for the short term. Bookkeeping helps predict these situations and dodge these situations in the first place.

Tax Management

Taxes are an unavoidable aspect of business ownership (unfortunately!). Proper bookkeeping ensures that you’re accurately tracking deductible expenses and income, which can help you minimize your tax liability. By maintaining organized records, you’re also better prepared to respond to any tax inquiries or audit requests that come your way.

In the fast-paced world of entrepreneurship, neglecting bookkeeping can be detrimental for your small business. Having a clear picture of your businesses financial health keeps you out of the dark. Bookkeeping also provides leverage should you decided to reach out to an institution for financing, sell all or part of your business, or expand your offerings. It’s not just about crunching numbers; it’s about laying the groundwork for your business’s success and growth. By investing time and effort into proper bookkeeping practices, you’re setting your small business on a path to financial stability, compliance, and prosperity.

If you liked this post, click here to dive into bookkeeping essentials for beginners!

The post Staying Up-to-date on Your Bookkeeping first appeared on Lexi Vance-Service Based Bookkeeper.

Step 1

The first step is to gather all the documents and information you need to reconcile your bank account. This includes your bank statement, any canceled checks, deposit slips, and your bookkeeping records. You can use your accounting software to import transactions from your banking website, or upload them yourself.

Pro Tip: If you are entering bills, deposits, etc. into your software, make sure you are matching the bank transactions to the manually transactions already entered in the software.

Step 2

Compare the beginning balance on your bank statement with the beginning balance in your bookkeeping records. They should match. If they don’t match, investigate the reason for the discrepancy.

Pro Tip: The ending balance of your previous statement should be the beginning balance of your current statement

Step 3

Record any outstanding checks and deposits that have not yet cleared on your bank statement. Add outstanding deposits to the ending balance, and subtract outstanding checks from the ending balance.

These are checks that have been issued to vendors, but they have not deposited the check. For example, if you wrote and mailed a check on the last day of the month, there is a high chance that check will not be cashed until the following month. Accounting for these situations helps show a true balance of cash available.

Step 4

Compare the deposits and checks on your bank statement with those in your bookkeeping records. Check each item to ensure that it is correctly recorded in your bookkeeping system. If you find any discrepancies, investigate them.

Pro Tip: If you are using an accounting software like Quickbooks Online, you can easily tell if an entry is manually created, or imported by bank feeds. Check out the picture below: transactions in the reconciliation window with the green box beside them are bank feed transactions, while the transaction with no marker has been manually entered. Make sure all manually entered transactions are matched to the correct bank feed transactions. Ignoring this results in transactions being duplicated–a big no no! This could skew your accounting reports and cause tax issues by overstating your expenses–yikes!

Step 5

After verifying all transactions, reconcile the ending balance on your bank statement with the ending balance in your bookkeeping records. They should match. If they don’t match, double-check all the transactions and make sure there are no errors or omissions.

Step 6

If there are any discrepancies, make the necessary adjustments to your bookkeeping records. This may involve correcting errors or adding missing transactions.

Reconciling monthly will keep your records up to date and accurate. If you have having trouble getting the account to balance and can’t seem to find any differences in your records vs the statement. Take a step back, move to something else, and come back in 5 or 10 minutes with fresh eyes. You won’t believe you didn’t catch that .53 that was supposed to be .35 on one of your transactions

Still having trouble? Check your statement for any bank charges or interest that would not be identified as a transaction in the actual statement.

Recap

Once you have reconciled your bank account, make sure to save all your records, including your bank statement, canceled checks, and deposit slips. This will help you in case of any future questions or discrepancies.

Pro Tip: I recommend saving everything digital. Here is a list of items I save for each reconciliation:

• Bank Statement
• Reconciliation Summary

Make sure all receipts are kept for documentation should Uncle Sam come knockin’. You can choose to file paper copies or file electronic copies. Do whatever is easiest for you personally.

By following these steps, you can reconcile your bank account accurately and efficiently. Reconciling your bank account regularly can help you keep your financial records accurate and up-to-date, and ensure that your business is on track.

The post 6 steps to reconcile like a Pro first appeared on Lexi Vance-Service Based Bookkeeper.

Bookkeeping errors can have serious consequences for a business, such as inaccurate financial statements, tax problems, and even legal issues. Here are five common bookkeeping errors and how to avoid them:

Data Errors

Data entry errors can occur when numbers are typed incorrectly, transposed, or omitted altogether. These errors can lead to inaccurate financial statements and tax filings. To avoid data entry errors, consider using bookkeeping software with automated data entry features or use a double-entry system to verify accuracy.

Co-Mingling Business & Personal

Mixing personal and business expenses is a common mistake made by small business owners. It can make it difficult to track business expenses and can result in inaccurate financial statements. To avoid this error, open a separate bank account for business transactions and use it exclusively for business-related expenses.

Opening a business bank account is easy! Check out my post here about how to quickly and successfully set up a business bank account. Also included is my list of (what I consider) necessary accounts.

Not Reconciling Accounts

Failing to reconcile accounts can lead to errors in financial statements and cash flow problems. Reconciling involves comparing bank statements to bookkeeping records to ensure accuracy. To avoid this error, set aside time each month to reconcile accounts and investigate any discrepancies.

Check out my article for what to look for when reconciling your bank account. And no–just pushing “reconcile” in Quickbooks does not count if you have outstanding transactions that are a mess! Learn to reconcile here!

No Data Back Ups

Not backing up bookkeeping data can result in the loss of critical financial information in the event of a computer crash or other data loss. To avoid this error, regularly backup bookkeeping data to an external hard drive or cloud-based storage system. With the rise of cloud accounting systems, this has become less of a threat. Even using cloud based systems, I recommend saving a PDF version of the following reports each month:

• Profit and Loss
• Balance Sheet
• General Ledger

Ignoring Tax Deadlines

Failing to meet tax deadlines can result in costly penalties and interest charges. To avoid this error, keep track of all tax deadlines and file tax returns on time or consider hiring a professional bookkeeper or accountant to handle tax filings. Read that again..

Taxes get a lot of small businesses in a bind. If you are unsure of the taxes you should be paying, speak to a local professional and they should be able to help

Conclusion

By being aware of these common bookkeeping errors and taking proactive steps to avoid them, businesses can maintain accurate financial records and avoid potential problems down the road.

Any questions? Leave me a comment and I will get back to you!

The post 5 common bookkeeping errors and how to avoid them first appeared on Lexi Vance-Service Based Bookkeeper.