Five “Must Do” Practices for the Small Business Owner.

posted Sep 17, 2012, 7:10 PM by Lou Peppe   [ updated Sep 18, 2012, 4:54 AM ]

There are some things that every small business needs to do to be successful.  Whether a Sole Proprietor, LLC, C or S corporation the basics for the small business person are the same.  Follow these 5 common business practices and the likelihood of your business to succeed and grow will increase dramatically.

1.     Maintain Separate Bank Accounts 

If you don't do anything else at least open a separate bank account for your business. If you have more than one business open a separate account for each one. Do not co-mingle (mix) your personal expenses or receipts with your business expenses or receipts. Deposit all your business receipts into your business accounts(s) and write checks for your major business expenses from your business checking account(s). If you need money from your business for personal expenses write yourself a check from your business checking account(s) and deposit it in your personal checking account.

2.       Prepare Good Documentation/Deposit Slips 

The area for descriptions on most deposit slips is not big enough to enter detailed information. Your entries on your slips should just be a summary entry such as the customer's name and/or check number. You need to record the detailed information regarding the check or cash deposited on a separate form. I call it a Deposit Receipts Form and it becomes the detail backup for your deposit. You can make up the form yourself and call it whatever you like.  The important thing is that you record:

Customer's Name 

Customer's Check Number or Cash Receipt # (If you were paid in cash you should have provided your customer with a cash receipt)

Method Of Payment-Cash or Check

Total Amount Received 

Invoice Number(s) Paid and Amount 

All customer remittance advices (form attached to check that shows the invoices paid) should be saved and attached (stapled) to your form. If your deposit is 5 customer checks and 1 cash payment then you should have 6 Deposit Receipt forms filed with your copy of the deposit slip.

3.       Deposit All Cash Receipts In A Timely Matter 

If your activity warrants it you should deposit your receipts each day in order to reduce the risk of money being lost or stolen. If your business does not have a lot of cash receipts activity you should at least deposit your receipts every week regardless of the amount of cash on hand. All currency, checks, and cash items received should be deposited intact without any deductions for expenses or advances. Use your petty cash fund to pay expenses or advances that require currency. You should not keep large quantities of cash on your premises. If you need cash (currency) for a specific purpose go to the bank and cash a check when it is needed.

4.       Prepare & Review Monthly Bank Reconciliations 

You wouldn't believe the number of small businesses that call the bank to see how much money they have. This frequently is NOT your actual balance. You can have checks and even deposits outstanding that the bank doesn’t know about because they haven’t processed yet!  All businesses should not only know their actual balance in the bank on a monthly basis but often on a daily basis as well. Reconciliations should be done to the penny.  You should not have a "Discrepancy" Account.  There is always a reason why the account doesn't reconcile and you need to find it. Writing off a discrepancy could be masking a larger problem. As an owner you may have someone doing the reconciliation for you but you should still occasionally check to see that this task is actually being performed and performed correctly.

5.       Prepare Monthly Financial Reports 

You're in business to make money so you need a report card to see how you actually did. You need to prepare monthly financial statements or have them prepared in order to monitor the success or failings of your business. Understand how to read a Profit & Loss Statement and Balance Sheet and review them each month. Having Timely and Accurate Financials Statements and sharing them with your tax accountant before the end of the year can help you with strategies and investments that can reduce your overall tax burden.