5 Tips for Small Business Owners to Assess and Improve Their Bookkeeping America's small businesses face unprecedented challenges. Small business bankruptcy filings increased 78% over the past year, driven by impending changes to bankruptcy law and ongoing uncertainty about the overall economic...

America's small businesses face unprecedented challenges. Small business bankruptcy filings increased 78% over the past year, driven by impending changes to bankruptcy law and ongoing uncertainty about the overall economic outlook.

Chief among these concerns is whether, when, and by how much the Federal Reserve Bank of the United States will begin cutting interest rates. Higher "Fed" interest rates mean small businesses pay more to borrow money, which directly impacts how much of each sale they get to keep for themselves.

As a business owner, you indeed wish things could be easier. On the other hand, you also know that great challenges often bring great opportunities. By laying the groundwork for your business to survive now, when conditions are difficult and uncertainty reigns, you'll also set your company up to thrive in good times.

And, of course, the uncertain times that will undoubtedly follow. They call it the "business cycle" for good reason.

Among the many things you can do right now to put your small business in a position to succeed is to modernize its bookkeeping and accounting processes. If you haven't given much thought to your small business accounting goals lately, that needs to change because technology rapidly renders old accounting assumptions obsolete. A few simple tweaks could massively enhance your financial visibility and improve your company's profitability while saving you valuable time and, of course, money.

Not sure where to begin? Before you call an overpriced accounting firm, learn what other small businesses have done to strengthen their financial bookkeeping. Then, follow their lead and embrace these five simple small business bookkeeping enhancements.

1. Establish Clear, Consistent Bookkeeping Procedures to Track Transactions

Your first step should be to establish the rules of the road for your accounting processes. In other words, you need to lay out clear, consistent bookkeeping procedures to track your small business transactions on both sides of the ledger.

The shift to cashless payments makes this more straightforward. On the revenue side, many modern payment processing systems automatically assign inbound transactions to a specific point of sale or channel while providing additional information about the purchaser and purchase method (such as credit card type or client bank). This eliminates much of the need for manual bookkeeping, at least upfront.

On the payments side, electronic payments definitely make bookkeeping easier. Your bank account or credit card should automatically categorize your payments into general spending buckets. It will probably allow you to create narrower categories (or "tags") as needed to understand exactly where every dollar you spend goes.

For payments not made with a credit or debit card, use your bank's e-check or direct debit capabilities (or set up direct debit with your vendors) to ensure the same granular level of transaction bookkeeping and categorization. This isn't as big of a concern for standardized payments like payroll and tax transfers, but it demands attention for other types of payments.

Cash receipts can be trickier. If you run a retail store with multiple cash points of sale, you need a standardized system for tracking which cash (and how much) came through each vector. For efficiency and cost reasons, you probably only want to make one or, at most, two cash bank deposits per store per day, so you'll need to set up this system internally instead of relying on your bank. But it can be done.

2. Use Technology to Streamline Accounting and Gain Insights From Data

Once you've standardized your bookkeeping processes, your next step should be to invest in technology that streamlines and safeguards your business accounting to ensure those efforts don't go to waste.

Off-the-shelf solutions like Quicken or QuickBooks are popular tools for managing books you've likely heard of. These programs have grown with the times and now automate much of the drudgery of bookkeeping while streamlining critical financial processes like contractor payments, tax reporting, and budgeting.

These software solutions are helpful but only as good as the users' ability to input and manage the data. Consider implementing an AI-enabled financial solution alongside your bookkeeping software to monitor and make the most of your data.

Platforms like Hub Analytics enable business owners to oversee their company's financial activities without paying a CFO's six-figure salary. This is made possible by subjecting inputs to a proprietary 150-point analysis engine to ensure transactions are accurate and ready for reporting, enabling custom KPI tracking, and using your unique business data to deliver customized "profitability recommendations."

"In this day and age, if you're not automating your accounting, you're basically playing catch-up," says the company's vice president, Tommy Vincent. He adds that using financial technology to reduce the manual aspects of bookkeeping enables you to "work smarter, not harder," and get that much closer to financial freedom for your business.

3. Reconcile Accounts Often for Better Accuracy

Robust bookkeeping processes and top-tier accounting technology will improve your accounting and reduce error rates. Still, they can't guarantee that you won't make a serious mistake that will set back your company's finances.

Come to think of it, there are no guarantees in business. However, the best defense against preventable accounting mistakes is to reconcile your accounts regularly and correct errors as you find them.

"Reconciliation activity is a crucial part of business and serves as the last line of defense against financial fraud and errors," says Shagun Malhotra, founder of accounting tech solution SkyStem and former Fortune 100 auditor.

Malhotra advises business owners and accounting pros to watch out for common reconciliation pitfalls like not having standardized financial documentation, not keeping all your records in the same place, and spending too much time on status reporting instead of generating true reconciliation insights.

4. Invest in Training to Stay One Step Ahead of the Industry

Okay, so you're not a deep-in-the-books kind of business leader. Perhaps you even consider yourself a "numbers-phobic" type. You're not alone, as some of the world's most successful business people lack formal accounting training or any "proper" financial training for that matter.

But you can bet that those successful leaders invested in basic accounting training sooner or later for themselves and their leadership teams. As a leader, you know that you can't effectively analyze something if you don't have a general understanding of it. That applies to just about any aspect of business you can think of.

Let's be clear: Basic training is fine for non-accounting employees, but more is needed for your core finance team. If you have credentialed professionals on staff whose licenses require continuing education coursework, offer to cover the cost as a fringe benefit. Your competitors already do or will soon.

5. Periodically Check in on Business Performance to Plan for the Future

The four tips we've reviewed so far all involve improving data collection, management, and analysis. Ultimately, however, accounting is about the future. It's about knowing where your company has been financially so that you can chart a course for where it's headed.

In other words, you must know how to use the information generated by your accounting processes to assess your company's performance and create realistic plans for the next quarter, year, and five-year period. (If you forecast out that far — many businesses don't, and that's okay.)

This is more of a management challenge than an accounting challenge. It requires you to value your finance team's input and bring them closer to your business planning process rather than keeping them siloed off in a designated numbers-crunching room. And it looks different across industries and business sizes.

That said, it needs to happen regularly, at minimum once per year and better yet once per quarter. If you allow too much time to pass without paying close attention to your company's financial performance, its problems could eventually grow too big to ignore.

The Takeaway

Let's take a moment to review these five simple accounting tips and tricks.

First up, we have clear, consistent small business bookkeeping procedures. This is the foundation of a strong business accounting game, and it's essential for everything that comes next.

Next up is using technology to improve your accounting processes and reduce your internal workload. The more you can offload onto your technology solution while maintaining accuracy, the better.

Then comes regular reconciliation. This is your accounting "failsafe," and could spare you a costly mistake in the future.

Onward, we go toward training, not just your core bookkeeping team. Everyone you employ should understand the basics of business accounting.

Finally, don't forget to check in on your business's financial performance periodically. Otherwise, even with a well-oiled accounting machine running in the background, you could lose sight of short-term goals. Or, you could fail to notice as your longer-term trajectory begins to run off course.

Now that our crash course in sensible business accounting practices is over, let's conclude with a thought experiment.

Imagine, for a moment, where your business would be tomorrow if you could wave a magic wand and implement these practices today.

How much time would you and your leadership team be able to reclaim? Also, how much more money would you have in your business accounts? How much stronger would your company's financial position be? And, how confident would you be in its ability to weather uncertain times ahead?

Only you know the answers to these questions. But we'd be surprised if your answers weren't strongly positive, maybe even overwhelmingly so.

That being the case, what's holding you back? Why not take the first step toward a more secure business future and modernize your accounting practices today? There's no magic wand to make this happen immediately, but the sooner you start, the sooner you'll see actual results.

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