Bookkeeping Tips For LLC That You Should Know 2024

Your LLC’s financial health can be significantly impacted by your bookkeeping system. Business owners that lack a solid bookkeeping system may end up overpaying in income tax, missing key deductions for business taxes, and blending personal income with financial statements from the business.

That’s why it’s worth taking the time to learn about small business bookkeeping best practices you may be able to use to optimize your own bookkeeping methodology. We created this article to help. Keep reading to learn more about small business bookkeeping and business transactions for your LLC.

Read More: Best Registered Agent Services 2024

What is Bookkeeping?

Bookkeeping is the practice of tracking your business’s revenue and expenses, then compiling them into financial statements. For example, your bookkeeping practice may involve separating expenses for your business entity into different categories so you can see how much you spend on different categories of expenses.

Bookkeeping also sometimes encompasses the tasks of:

• Reviewing business credit card and cash flow statement information
• Using accounting software to gain deeper insights into personal and business finances
• Researching new accounting methods to see what works best for your company and its business expenses
• Preparing tax returns
• Other tasks related to business expenses, business finances, and personal assets

The bottom line is that businesses use bookkeeping to keep better track of their finances. Having a strong bookkeeping process is an important part of running a successful small business for precisely this reason.

The Importance of Bookkeeping

Bookkeeping matters because small business owners need to have an in-depth understanding of their financial transactions. The bookkeeping process provides the insight that a small business needs to make smarter decisions about how to run its business checking account, savings accounts, and financial reports, among other financial information you need to keep track of as a small business owner.

The bottom line is that having a general ledger with financial information for your single-member LLC or multi-member LLC gives you greater insight into the finances of the LLCs you run, which could help to make more informed decisions about what it will take to make those LLCs more successful.

How to Do Bookkeeping for Small Businesses

Whether you run one single-member LLC or several LLCs with multiple members, you may want to consider using accounting software as part of your bookkeeping process. The software can introduce you to new accounting methods and will often auto-populate information from your business bank account.

Accounting software is typically available for a monthly fee. Many small business owners feel the fee is worth paying, as this type of software can make it much easier to track every financial transaction, all credit card accounts and any other separate business account your company may have. This is sometimes called bookkeeping software as well, so be sure to look that up, too, if you’re interested.

You can do bookkeeping without an accounting program, but it will likely be a difficult, time-consuming process if you don’t have any bookkeeping software to support you. That being said, if you’re the only owner of an LLC and your company doesn’t have many financial documents or financial records and bank accounts to track, manual bookkeeping could be an option.

Read More: Best LLC Services 2024

Bookkeeping Tips For LLC That You Should Know 2024

Now that we know what bookkeeping is and why it’s important to your business’s health, let’s dive into some tips and strategies that you can use to keep better tabs on your business expenses and personal assets. Here are our top bookkeeping tips for a small business owner in 2023.

Have a Different Bank Account for Business

One of the first things you should do while setting up your small business is set up separate business accounts for your company’s finances. You may even want to create more than one business bank account, such as a separate business savings account that you hold for income tax and other unexpected expenses.

The benefit of having separate banking accounts for personal finances and business expenses is that it makes separating your personal funds from your business funds much easier to do. It’ll also make it much easier to create detailed financial reports quickly and should simplify things when it comes time to evaluate your tax obligations and personal liability.

Keep Your Receipts

It’ll also be important to make sure that you hang onto the receipts that you generate as a business owner. That’s true whether you run an LLC, a sole proprietorship, or any other type of business structure.

When you keep receipts, tax time will be much easier for you. You will be able to easily identify deductions that may reduce your tax obligations, which may be enough to keep you out of a higher tax bracket. Plus, receipts make tracking income and divvying up expenses based on each member’s share percentage when you have multiple owners much easier to do.

Automate Everything 

Automation is another tool you may want to look into while choosing an accrual accounting method or a cash method for cash accounting. Automation can complete various tasks for you that you would’ve otherwise been responsible for doing on your own.

It can help with sales tax, employment taxes, expense categorization, and even liability protection by reducing your risk of error. The bottom line is that automation saves LLCs time and money – both when tax time comes and you’re filing taxes and during the year by giving you more time to focus on the other parts of your company.

Keep Track of Mileage or Car Expenses

It’s also super important to keep track of your driving expenses as a business owner. You can often claim deductions on mileage and car repair payments if you use your vehicle for work. You may even be able to deduct your lease or loan payment.

Just make sure you pay for those charges with your business bank account so you can automate them when using software to help with accrual accounting or whatever cash method you’re using for expenses.

There are other similar expenses that may offer tax deductions down the line as well. For example, the cost of utility bills for office space and even the fees that you paid to create your LLC may be write-offs. However, for state taxes, your deductions will depend on the state that your LLC does business in.

Create Cash Flow Forecasts

Next up – make sure that you’re making regular cash flow forecasts for your business. This is a methodology called cash accounting and its goal is to keep track of how your company’s available cash flow is evolving over time.

The purpose of cash flow forecasts is to help you understand how your company’s cash reserves are evolving over time. This can have important ramifications for your business strategy.

You can find plenty of online guides to help you learn how to supplement the accrual method that you’ve been using with a cash accounting plan. Or you can use bookkeeping software. Most software options come with both cash accounting and accrual method options so you can use whatever accounting method makes the most sense for your company.

Taxes

Finally, regardless of the accrual accounting or cash accounting method that you’re using, it’s essential that you save for taxes. Accrual accounting software can help you do this by offering projections for your federal and state tax ID number. That way, you don’t have to perform the calculations on your own.

It’s important to save for taxes because you don’t want your company to get hit with a large tax payment that you weren’t expecting. Something like that could derail your finances and make it hard to grow in the coming year. Your operating agreement may have details on which LLC members are responsible for different percentages of the company’s taxes.

It’s also worth mentioning that you may need to make quarterly pre-payments on your future tax bill. The IRS requires this of many small business owners and self-employed individuals. It’s definitely something that you should look into and add to your bookkeeping methodology if necessary. Otherwise, you could face fines and penalties that increase your tax bill.

Final Thoughts

The bottom line is that bookkeeping is an important part of running a successful LLC. It’s something that you should begin thinking about as soon after you fill out your operating agreement as possible so that you can get the right strategy in place before you have to start playing catch up.

You can bookkeep on your own. But it’s often much easier to use accounting or bookkeeping software for support. This software usually comes with many automation features to save you time and can guide you through various bookkeeping tasks to help you avoid errors while you learn how to do this.

Frequently Asked Questions (FAQs)