January 4, 2022 | by Cheri Giglia
Some New Year's resolutions are gimmicks. If you want to exercise more, January 1 is really an arbitrary starting point. But if you want to do a better job of keeping the books at your small business, the beginning of the fiscal year is an ideal place to start.
With that in mind, here are seven ways you can improve your bookkeeping in 2022.
1. Fix your chart of accounts.
Even seasoned business leaders can be a little fuzzy on what exactly a chart of accounts (COA) is. Here's a great summary from Investopedia: "It is an organizational tool that provides a digestible breakdown of all the financial transactions that a company conducted during a specific accounting period, broken down into subcategories."
In other words, your COA is an optimal way of organizing your bookkeeping to achieve the greatest transparency into how your business is actually operating. And that makes it the perfect starting point for any list of bookkeeping resolutions.
Sit down with a bookkeeping professional today, and you can reorganize your COA to provide critical financial insight throughout the coming year. Is one product line vastly outselling all others? Is a particular location losing money? Are you sure you've included every expense that you should in cost of goods sold? Have you adequately separated general overhead from other expenses? The answers to these questions will provide the financial intelligence you need to cut costs and increase profitability.
2. Use the cloud.
Since you're reorganizing your COA anyway, you should also migrate from a desktop bookkeeping system to a cloud-based system (assuming you haven't already done so). A cloud-based, paperless system is more cost-effective and efficient. It's also more secure. If a desktop-based system crashes, it can take your records with it.
Finally, a cloud-based system enables remote access. That makes it easier to both keep tabs on your finances from anywhere via your smartphone and share information. One key benefit, for example, is that you can share your financial data with the CPA who does your taxes as well as with your bookkeeper. No need to set up an in-office appointment.
3. Close your books monthly.
Yes, reorganizing your COA and switching to the cloud will give you much better real-time insight into your financials than you've ever had. But you still need to take care of the bread-and-butter basics. It starts with monthly reconciliations of all bank, credit card and balance sheet accounts.
Taking this step will help you quickly rectify any errors or inconsistencies and can alert you to possible fraud schemes. It's also good practice to generate monthly financial statements such as a balance sheet and P&L. This not only provides vital business intelligence to you as the business owner, but also can keep you in good standing with board members or investors. Moreover, it can support a growth strategy that is dependent on outside financing, as banks and other financial institutions expect to see good, current records.
4. Set aside time to review your financials monthly.
Once you've set up your bookkeeping systems to provide greater intelligence, you have to act on it. For instance:
6. Keep personal and business expenses separate.
When you run your own business, you tend to spend so much time working that the boundary between your personal and professional lives disappears — particularly during the startup phase. So if you're on a business trip, for example, you might not think twice about using your personal credit card to pay your expenses (especially if you're trying to build up enough miles to qualify for a free flight or two). The problem is that if you don't separate your personal finances from your business finances, the IRS and bankruptcy courts won't do it, either. All of your personal finances can wind up at risk, including your house.
If you're still using your personal checking account or credit cards to pay business expenses, now is the time to stop. Open dedicated accounts for your business before January 1, and make sure to use them for every business-related expense — no exceptions.
7. Set aside money for taxes.
Like resolution No. 6, this is a common issue at startups. If you worked a salaried job before launching your own business, you tend to think of whatever money that comes in as all yours, because all deductions were already made from your paycheck.
As a business owner, however, it's up to you to determine how much you owe in taxes and to pay it promptly. That's why most business owners opt to pay estimated quarterly taxes along the way — so they don't get slammed with a huge bill at year's end. But even quarterly tax bills can be crippling if you haven't set aside the proper amount to pay them as you go along.
A Toast to 2022
The key to successful New Year's resolutions is to set achievable goals. With the right bookkeeping support, you can be ready to act on each of these resolutions starting on New Year's Day — and continuing right through next New Year's Eve. You'll be amazed at the results you can achieve.
Cheri Giglia, Managing Director of Supporting Strategies | North Shore Long Island, provides bookkeeping and controller services to growing businesses.
This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.
Supporting Strategies is not a CPA firm.