Keeping your books up-to-date is important to almost every business. Super small, freelancers might be able to monitor their bank account to know how they're doing but it doesn’t take much activity before you need to use an application like Xero to understand what you're bringing in and where your money is going out.
Are you profitable? What tweaks can you make to increase your profitability? Can you afford to hire help?
All of these questions can be answered with timely and accurate bookkeeping.
As you start, you have to do it yourself. Eventually, you'll become too busy and won’t have the time to stay current. Automating as much as you can, will help you keep useable numbers until you get large enough to bring in the experts.
So, until then, be sure not to fall into these bad habits:
Be consistent and stay up-to-date with your coding. If you delay a week, two weeks, etc. it’ll start to weigh on your mind and become a more painful process than it needs to be.
Using apps like Xero, bank and credit cards feed directly into the app. You can use the Xero's website or their mobile app to code transactions. Setup Rules for predictable, recurring transactions, so they’re already coded. All you need to do is hit OK.
If you encounter a challenging transaction that you don’t know how to handle, reach out to an expert. Don’t code it wrong as it’s harder to go back later and correct. Have an outlet for quick answers so you can move right along and code it right.
Some very small businesses have accrual requirements that can get complex. If you have one of these businesses, you may need more help, and sooner, than a company that has more simple requirements for accurate reporting.
You’ll find out right away that the term “cash is king” is valid for all businesses. Unless you have significant funding, you’ll be depending on your customers paying you timely. They can’t pay you if you haven’t invoiced. Never delay on getting your invoices out.
Setup automated payment reminders using apps like Xero, so you don’t have to remember to follow up and remind your customers to pay manually. If the amount is the same each month, use Repeating invoices, so it runs automatically. Run an AR Aging report to see who’s behind and don’t be shy to call and ask for payment. You’re not here to run a charity (unless you are running a charity).
Devise payment arrangements where you are paid up front or in phases versus the transition model of paying after you’ve delivered the service or good. Deposits or milestone payments before you continue work are good practices, so you’re not chasing down receivables when the work is performed. Collect credit cards so you can process payment automatically using apps like IntegraPay.
You’ve heard the term garbage in is garbage out. That’s true with accounting. We’ve inherited books where running an Income Statement or Balance Sheet is useless. The data isn’t wrong; there are double entries, missing transactions, paid receivables that still look open. You get the idea.
If you’re stuck, ask for help. To use an extreme example; it may be better to start from scratch than to record year after year of wrong information and have someone come in to clean it up. I joke a bit, but there’s some truth in there. It can cost thousands of dollars to clean a set of books.
Find a partner to help you get it right. It’ll give you peace of mind in the now and will be one less problem to deal with when you scale.
Nobody enjoys documenting and filing. Setup automated systems to help you maintain proper records of your transactions. Credit card statements are not enough to support your books. You need to receipts, agreements, confirmations at the transaction level.
Apps like Xero, ReceiptBank, or Hubdoc are designed to help automate this process. You may not need it now, but when the time comes to bring on a partner, merge, or get acquired, you’ll wish you had everything in place to complete the transactions. We’ve seen business acquisition, and partnership attempts fail due to delays in getting their I’s dotted and t’s crossed. How do you think your potential business partner will feel when you’re searching your Gmail for accounting records. That doesn’t exude confidence in your ability to run a business.
Mixing Business with Personal
Unless you plan to freelance on your own forever, commingling your business and personal cash is a bad idea. On day one of your new endeavor, it’s not a big deal. Once you start getting traction, you want to make sure you have business bank accounts and credit cards in place and feeding into your accounting system. Keep business and personal separate from the start, and you’ll train yourself good habits right away.
One of the hardest thing for a bookkeeper to do is clean up a set of books mixed with personal transactions.
From a business perspective, how will you ever be able to tell how your business is performing with video games or designer shoes running through the business? If your goal is to run a profitable, scalable, multi-million dollar business, start acting the part right out of the gates.
Avoid these bad habits early, and you’ve made substantial steps in building a successful business.
If you’re ready to bring in the experts to take this off your hands and provide you with timely information and insight, reach out.