Bookkeeping is an unpopular subject with most small business owners. Unless you are number cruncher at heart, most everyone would agree: the tedious task of making daily entries into a ledger or computer program is an unpleasant thought at best. But without some form of accounting, practically all businesses will eventually fail. Keeping an accurate set of books helps the owner analyze the true financial status of a business. By having an accurate financial "picture", an owner can adjust the company's direction and prevent a small problem from becoming a large one. Companies can be saved - or broken, by the accuracy of their accounting. This article will discuss the most basic tool for helping the small business owner balance his or her books: the business bank account.
The very first thing you should do - even before you open your business, is to get a business checking account. Visit your local bank and tell them you need a small business account. You may be required to file for a DBA ("doing business as"). Your bank can give you the specifics if a DBA is required. If the thought of additional monthly fees for a second account bother you, don't worry because more than likely the bank will have a "fee free" account option for your new business. If your bank doesn't offer a fee free account, then shop around. Visit all the banks in town, or at least the ones that are near your home or office. You'll eventually find one that has significantly lower fees (or perhaps none at all). Also, make sure you get a debit card or credit card that is attached to your account (this is important!).
There are a few rules that you must keep in mind when you have your business bank account. The first is: never pay business bills with cash! Cash payments can be easily forgotten and may never make it into your expense list. Your business bank account exists to pay for expenses and to make income deposits. Always write a check or use your credit card for every bill no matter how small or insignificant it may seem. Why? Because it guarantees a record is made for all your expenses. You need a permanent record and by writing a check or using your credit card, you guarantee that your transaction won't be forgotten at the end of the month when you are crunching numbers.
Another rule to live by with your bank account: deposit every bit of income into your account. This includes cash and any checks that may have been made out to you instead of your business name. The reason why you should get into this habit is the same as listed in the previous paragraph: it guarantees a record of your income. You can balance out your books much easier and quicker when everything has been recorded and listed in your bank account statement.
The last rule for your account is never pay for personal expenses through your business account. While it is legal for sole proprietors to mix funds, it is not advisable. Bookkeeping can get very confusing when you pay personal and business expenses from the same account. For companies with multiple owners, it can spell disaster and can make a person subject to unnecessary tax and legal complications. The simplest solution to avoid such problems is to not mix expenses!
By following the above listed rules for your business checking account, accounting will be much easier. Every new business owner (and even those who have been in business a while) should strive to adhere to these basic guidelines as they will find general accounting to be much easier when their bank statements accurately reflect every business expense and income.