Contributed by James E. Heyward
James E. Heyward is the owner of Heyward CPA PLLC. Heyward CPA offers business consulting, financial statement preparation, and tax preparation. James serves as a partner and advisor to his clients with the goal of helping small businesses flourish.

Financial statements are excellent tools that can help a small business owner to manage effectively. Despite this, many businesses treat their financials as an afterthought and only use them when it’s time to prepare taxes.
Only a small percentage of owners look at or understand their financial statements. Many don’t even review their tax returns after filing.
If you care about analyzing your company’s performance and forecasting, having good data is a must. Once you have good data, using a tool like Liveplan can help you get the most out of it when you’re ready to conduct analyses and forecasts.
In this guide, I will provide some tips on improving the quality of your financial statements so they are as clean as possible.
1. Don’t Mix Your Business and Personal Expenses
A common mistake new business owners make is to use their personal bank account to manage their business.
Mixing business and personal monies is considered commingling. Commingling funds may be convenient but the practice will compromise the validity of your financial statements and possibly cost you money.
If you are working with an outside accountant, sifting through your personal charges to determine the business activity will take more time and increase your fees.
Commingling funds also invites more scrutiny from the IRS if you are ever audited. If the IRS feels that expenses aren’t clearly defined between business and personal they may disallow all expenses and increase the amount of tax you owe.
The easiest way to avoid commingling funds is to open a separate business account. Along with reducing commingling, you are operating as a business in case that comes into question.
When deciding on a bank, I tend to look at their fees structure and what other services they can offer me. There are small to midsize banks that offer no-fee accounts, while larger banks tend to charge around $14 dollars per month for basic accounts. If you are a member of a credit union, see if they offer business accounts.
If you are a sole proprietor operating under your Social Security number, you can use a non-business checking separate from your primary account. This is an ideal solution for micro-businesses or side-hustles.
2. Properly Record Payments Made to Owners
There are two ways for owners to take cash out of their businesses: receiving a payroll check as a salary or writing a check to themselves using online paystub generator. When writing a check to yourself, some business owners will consider this check a salary. These payments are considered draws or distributions as opposed to a payroll check, where taxes and social security is withheld.
Unlike payroll, draws are not expenses against business income; they are returns of profit to the owner and are recorded on the balance sheet, which makes them taxable. When these payments are recorded to salary the company’s profit and loss will be misstated.
Personal purchases made with a debit or credit card must be categorized properly to keep financials clean. Even when owners are mindful of commingling, there are times when the business account has more money than the personal account, the weekly grocery bill gets paid with the business debit or credit card. Unless the grocery bill is directly related to your business, this purchase should be recorded as a draw or distribution.
3. Keep Good Records
Software will make keeping records manageable. To keep great records, you don’t need to be meticulous, you just need to be consistent.
When business owners ask the best way to keep up with their expenses, I immediately say, “Use your debit or credit card.” These transactions will appear on your bank statement, which frees you from having to keep up with receipts. This provides a solid reference if you are ever audited or need to recreate your books.
In contrast, using your debit card at an ATM machine to pull out cash on a regular basis will make it difficult to put together clean financials. Keeping up with receipts on a consistent basis is challenging as one can easily be missed. Although there are times when spending cash is necessary, I recommend avoiding it when possible.
4. Establish an Accounting System
The best accounting system to use is the one you feel comfortable with.
There is a difference between an accounting system and software. An accounting system is the method a business uses to record transactions and generate reports of the transactions. This can be done in a notebook, on a ledger, or using a program like Excel or Google Sheets. You can find Excel spreadsheet templates for common bookkeeping tasks online.
To be effective, you need to use the system consistently and stay true to the framework that you set up. For example, if you record “supply expense” in one period, you should record it the same way in subsequent periods. To achieve consistency, designate a specific time when you’ll update the system (either daily, weekly or monthly), so that you can begin making it a habit.
This is where accounting software makes life easier, especially cloud applications like Xero and Quickbooks. Cloud apps are designed for non-accountants and attempt to provide a user-friendly interface that allows most people to become proficient in after a little training. Both programs can be accessed from anywhere with an internet browser and offer mobile apps that make the experience convenient and seamless when you’re on the go.
If working in your system seems daunting, you can always hire a professional that offers client accounting services or outsourced accounting. Professionals would be in charge of keeping up with your ledger and generating reports on an agreed timetable. Many practitioners offer this service on a flat recurring fee and offer upgrades like bill paying, accounts receivable management, and payroll processing.
An accountant can assist you with the specifics of setting up an accounting system for your business, and a process management tool can help you keep things in order. There are a lot of options out there, but Process Street in particular has a lot of useful information and checklists that are specific to accounting:
- What is the Accounting Cycle? How to Manage Workflows in Accounting
- 7 Small Business Accounting Templates To Secure Business Success
- 11 Checklists to Optimize Your Accounting Processes
To stay on top of your monthly bookkeeping, here’s a simple 5-step workflow. 5-Minute Bookkeeping is also a great general resource for learning more about managing your company’s books, especially if you’re a QuickBooks user.
If you’re unsure when you’re going to fit all of this into the day-to-day running of your business, here are 15 key accounting tasks broken down by when you need to do them.
5. Use Your Financial Statements to Optimize Your Business
As with any tool, well-maintained financials are only useful to your business if you use them. Fortunately, there are a lot of ways to use financial statements to build and sustain your business:
- Management: Financial statements provide a wealth of data that you can use to make decisions.
- Securing funding: A clean set of financial statements prepared according to Generally Accepted Accounting Principles (GAAP) can help convince investors to take a chance on your business.
- Strategic planning: Incorporating forecasting or analysis of your financials can help you visualize the impact of longer-range planning on your bottom line.
- Preventing a cash flow crisis: A lot of businesses fail due to poor cash flow. Monitoring your cash flow statement can help make sure that your company isn’t one of them.
Conclusion
Your financial statements are only as good as the data you compile. By following some of the tips I just offered, you can achieve clean and complete financials that will help you to analyze performance, forecast, and plan more effectively.
If you’re ready for a conversation about specific ways to put your financial statements to work in your business, I’d be happy to set up a time to talk. You can schedule a free consultation by visiting Heyward CPA online or giving us a call at 919-886-4829.
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