Whether you employ a bookkeeper or not, you should still incorporate many of the activities they perform into your business strategy. By involving these procedures in your business strategy, you will be able to prepare your small business for financial growth and profitability.
Startups face many challenges during the initial days of their business ownership, and it’s quite common for all business owners to face these unexpected challenges.
The main aspect of managing your business is starting with the correct methods or procedures from day one. It's about managing your finances. Small businesses rely on finance for a major part of their operations. As a startup business owner, you don’t need to start with bookkeeping or accounting, but you do need to have skills for the survival of your business.
This article gives you an understanding of financial management that helps you manage your business.
What is the difference between accounting and bookkeeping?
There is a similarity between accounting and bookkeeping because both roles manage financial data and track transactions. But the difference is that bookkeeping focuses on the day-to-day transactions of financial data, while accountants are responsible for helping businesses with the tax code and making long-term financial plans.
Bookkeeping best practices for entrepreneurs
1. Keep your personal and business accounts separate.
Even in the beginning, it is vital to keep your personal and company accounts separate. It's a smart option to have a separate legal entity, such as an LLC or an S corporation, but you also need to maintain the split by keeping your personal finances separate from those of your company's expenses.
When making certain purchases—even unimportant ones like light bulbs for your office—using your personal account, you'll be less likely to be able to deduct them from your taxes as company costs.
The cost incurred on small purchases will add up over a year, and every rupee counts, especially in the early days when margins are low.
2. Handle your accounts payable and accounts receivable.
First, let’s understand what accounts payable and accounts receivable are:
Accounts payable (AP): This is the sum of money that a company owes to its suppliers and creditors. While AP excludes other expenses like salary and mortgage payments, it does cover investor loans.
Accounts receivable (AR): Accounts receivable (AR): Accounts receivable is the term used to describe the money that your company expects to be paid in return for its goods or services. Since the amount of money you receive will ultimately determine what you can pay, this is likely the more important of the two for you to carefully evaluate.