Business Bookkeeping for Your New Business (Start a Healthy Habit)
Post #19: Tracking your business finances in a bookkeeping tool is a healthy habit that will pay dividends and lead to long-term success.
In this Substack, I will walk you through the process of starting, operating, maintaining, and — if needed — selling or closing your own small business.
Today, I’m going to cover the importance of maintaining your business finances with a bookkeeping application even while you are still bootstrapping your new business (and before you have any revenue coming in).
Many new business owners spend a lot of time focusing on their product or service to get money coming in.
“No bucks, no Buck Rogers!” - Source
However, bookkeeping is just as important as the work of ramping up sales.
👉 Subscribe to this Substack if you want to learn how to setup, operate, maintain, scale, etc… a small business. The Journey began with Post #1.
To review:
You decided on the service or product to offer, came up with potential business names, checked a variety of sources to ensure that your potential business name has not already been claimed, and made sure that your new business name would stand out to potential customers [Posts 1-11].
You chose the right business structure, registered your business, got a DBA for your brand name, acquired an EIN from the IRS, learned why it’s a good idea to convert your Sole Proprietorship to an LLC, discovered the benefits of upgrading your LLC to an S-Corp, and set up a record-keeping system [Posts 12-18].
Keep Track of Your Finances from Day One
Starting a small business can be an exciting roller coaster ride, but it also comes with the responsibility of managing your finances effectively.
Tracking your expenses (and other financial activity) from the very beginning — before you are making any money, have any customers or clients, or start paying business bills — will set the stage for long-term success.
💡 Tip: while you are just bootstrapping, or while your business is still small and manageable, you really don’t need a professional bookkeeper or accountant to keep track of your business’s books.
This is a cost that you can avoid while you are just getting started or while there is minimal financial management to do on a daily basis.
Once you experience some success and prefer to spend more time on your customers or other aspects of the business, then it might make sense to offload this work to someone else.
Why Bookkeeping Matters
There are a million reasons why this is such an important step in setting up operations for your business, but here are a few of the most important ones:
Financial Clarity: Maintaining your books gives you a clear picture of where your money is going and how much you’re earning.
Tax Compliance: Accurate records reduce the stress of filing your taxes and improves your ability to claim all eligible deductions (i.e.: business expenses).
Better Decision-Making: Knowing your numbers helps you to make more informed decisions about hiring, investing, or cutting costs.
Access to Funding: Lenders and investors need to see financial records before approving loans or investments.
Buy-out Positioning: Potential buyers will not consider buying your business without a deep dive into your business books.
Keep a Close Eye on Your Books
📌 Hint: Be Careful!
While a good and reliable bookkeeper can be a great resource to add to your business’s management team, you may find that it is best to always keep a close watch on your books.
No one cares more about your business than you do!
Handing over control of your business books to an unvetted third party, unreliable staff member, or otherwise untrustworthy service provider could also expose your business to financial mismanagement (if you are very unlucky).
I have heard of several companies learning this lesson “the hard way” after discovering that their financial manager was embezzling funds from the business accounts. When this happens, business owners are in for a rough roller coaster ride to repair the damage… and, the stolen funds are rarely recovered in full.
💡 Tip: If you are really uncomfortable with doing your own bookkeeping and need to hire help, you should - at the very least - request a recurring meeting or system-generated report to review progress and stay on top of your financial activity.
Getting Started with a Healthy Habit
Some habits are bad for your health (like smoking or watching too much TV), but keeping on top of your business books is a habit that will pay dividends!
And, if you fall off the wagon, you may find yourself in a ditch with a whole lot of catch-up work to do. Yuck!
How do I know this?
Well, I once got 9 months behind in my own bookkeeping work!
The catch-up effort took nearly twice as long as it would have taken me had I just stayed current with the books. A full month and a half of suffering taught me that I can’t get behind on this work ever again!
Bookkeeping really needs to become a habit or a recurring task on your to-do list.
Recommendations for Business Bookkeeping
Here are a few recommendations as you start your own habit of ‘doing the books’:
(1) Separate Personal and Business Finances
Open a dedicated business bank account and use it exclusively for business transactions.
This separation not only simplifies bookkeeping but also protects your personal assets in case of legal issues.
💡 Tip: In an upcoming post, I will address the topic of business bank accounts. Subscribe to be notified when this topic is released!
(2) Use a Bookkeeping Tool
Whether it’s a spreadsheet, a free app, or paid software, make sure you choose a bookkeeping tool that you’re comfortable using.
Keep track of income, expenses, and receipts in one place to stay organized.
Bookkeeping is part of your overall record-keeping system.
(3) Develop a Routine
Regular maintenance prevents errors and keeps things manageable.
Set aside time weekly to update your records.
Create reminders for recurring tasks like reconciling accounts or reviewing reports.
Require your subcontractors to submit expense reports and invoices on a recurring basis (monthly is best) so that they don’t impede your schedule.
Pick a schedule for when you make business bill payments and then capture those payments in your bookkeeping tool immediately.
Don’t get 9 months behind, like I did!
(4) Keep Receipts and Documentation
Save receipts for every business expense, whether it’s a coffee meeting with a client, office supplies, or gas for your car.
💡 Tip: Yes — even that $3.15 notebook from Kroger can be deducted as a business expense! Save your receipt for good records.
If it helps you stay organized as part of your record-keeping system, you may find that scanning and storing receipts with digital tools can help you avoid losing paper copies.
(5) Categorize Transactions Correctly
Assign each transaction to the right category, such as “Marketing,” “Office Supplies,” or “Travel.”
💡 Tip: The IRS website (IRS.gov) is a great resource for more information about categories for business expenses.
Check out this Guide to business expense resources (from the official IRS website).
If you are unsure and prefer to have professional help with categorizing your expenses, you may want to talk with a CPA or tax professional to ensure your categories align with tax regulations.
(6) Reconcile Accounts Regularly
Check that your records match your bank statements monthly.
Reconciling on a regular basis will help you to catch errors, avoid overdrafts, and ensure your financial reports are accurate.
Risks of Neglecting Bookkeeping
Neglecting or getting really behind in your bookkeeping is not the same as getting behind in household chores (for example). If you skip vacuuming your house for a few weeks, the dirt will build up, but there are no “Clean Police” to come get you.
If you don’t do your books and get really behind, there are real consequences!
Here are just a few of the scary consequences, for example:
Missed Tax Deductions: Without accurate records, you might overlook expenses that could save you money on taxes.
Cash Flow Problems: Poor bookkeeping can lead to late payments, overdrafts, or running out of cash unexpectedly.
Increased Stress: Scrambling to organize financial records at tax time can be overwhelming and lead to costly mistakes, late fees, and penalties.
Limited Growth Opportunities: Incomplete or messy records can prevent you from securing loans, grants, or investments. It could even lead to a failed business or bankruptcy.
💡 Tip: did you know that Al Capone, the famous Chicago gangster during the Prohibition era, went to jail for tax evasion? He got away with murder but got busted by the IRS! (Source)
Good bookkeeping habits are essential for operating your business.
Staying organized and proactive will save time, reduce stress, and lead to financial stability.
Start small, stay consistent, and don’t hesitate to seek professional help if needed.
The effort you put into bookkeeping now will pay off as your business grows.
Next Steps
In the next post, I’m going to discuss the importance of small business financial management and keeping your personal and business finances separate.
👉 Continue the Journey with Post #20 —>
Yes! All of this!
You gave me a good idea for an article focusing on what to expect from your bookkeeper to ensure and build trust.
Fantastic!!! I’m not a professional bookkeeper but I have worn that hat as a business owner and love the work. Please share the link with me when you post it!
Would you restack this article? I’d love to do the same for yours when you publish it!