Operating expenses (opex) are your day-to-day costs of doing business, while capital expenditures (capex) are major investments that’ll benefit your business for years to come. Understanding the difference helps you make smarter financial decisions and keeps you on the right side of the IRS. Let’s compare capex vs opex.

What is capex?

Capex (or capital expenditures) are major purchases that will help your business generate revenue for more than a year. Capex includes the big-ticket items that stick around and help your business grow over time.

Categories of capital expenditures

We typically see capex fall into these main buckets:

• Physical assets like buildings, machinery, and vehicles that you will use for multiple years
• Technology infrastructure including servers, network equipment, and enterprise software licenses that have multi-year terms
• Major upgrades or improvements to existing assets that significantly extend their useful life or capabilities

Examples of capital expenditures

Let’s make this concrete. Here are some common capex purchases we frequently see among our small business clients:

• A coffee shop buying a new commercial espresso machine they’ll use for the next 5-7 years
• A construction company purchasing heavy equipment like excavators or bulldozers
• A retail store installing a new HVAC system that will heat and cool their space for the next 15-20 years

How to record capex in your books

When it comes to recording these purchases, you don’t treat them like regular expenses. Instead, you:

• Record the full purchase price as an asset on your balance sheet
• Track accumulated depreciation to show how much of the asset’s value you’ve already written off
• Depreciate the asset over its useful life, which spreads the cost across multiple years on your income statement

What is opex?

Opex (or operating expenses) are the regular, recurring costs that keep your business running day-to-day. These are the expenses that help you generate revenue in the current period.

Examples of opex

Most of your regular business expenses probably fall into the opex category. Here are some common ones:

• Rent payments for your office or retail space
• Utilities, office supplies, and routine maintenance costs
• Employee salaries and benefits
• Marketing and advertising expenses that drive current sales

How to record opex in your books

Recording operating expenses is more straightforward than capex:

• We expense these costs immediately on your income statement in the period they occur
• They directly reduce your taxable income for the current period
• We categorize them by type to help track where your money’s going and identify areas for cost reduction

Common challenges with capex and opex

We often see small business owners struggle with these aspects of expense management:

• Determining whether an expense qualifies as capex or opex — especially for technology purchases where the lines can blur
• Calculating depreciation correctly and choosing the right depreciation method for different types of assets
• Managing cash flow when making large capex investments while maintaining enough working capital for regular opex
• Keeping proper documentation to support your expense classifications in case of an audit

 

If you run into any of these issues, an accountant can help you set up reliable systems to track and classify your expenses correctly.

Ready to get your expenses sorted?

Archer Lewis is here to help you make sense of your business expenses and set up systems that make tracking them easier. Want to learn more? Explore the bookkeeping services we offer small businesses.

Managing your business’s petty cash is an important part of dealing with those day-to-day expenses — office supplies, coffee runs, stamps for mailings. While most business expenses can be handled through your regular accounting system, sometimes you need quick access to cash for these minor purchases. Enter petty cash.

This article covers everything you need to know about setting up and managing a petty cash system that works for your business.

What is petty cash?

Petty cash is a small amount of money kept on hand to pay for minor business expenses. Just like you might keep some cash in your personal wallet for small purchases, your business needs the same. Having petty cash available means you won’t need to write a check or use a credit card for small amounts, and your employees won’t have to use their personal funds and wait for reimbursement.

How much petty cash should you have on hand?

For most small businesses, we typically recommend keeping between $100 to $500 in petty cash, depending on your specific needs. The exact amount should be based on a few key factors:

• Your monthly spending patterns: Track how much you typically need for small purchases over a month.
• Payment frequency: How often do you plan to replenish the fund (weekly, bi-weekly, or monthly)?
• Business type: Retail stores might need more for things like making change or emergency supplies, while service businesses might need less.

 

That said, you really shouldn’t keep more than you’d spend in a single replenishment period. For instance, if you typically spend about $200 on small expenses every two weeks, there’s no reason to keep $500 in the fund.

The imprest system

We recommend using what’s called the imprest system to manage your petty cash. Don’t let the fancy name fool you — it’s actually pretty straightforward. Here’s how it works:

You start with a fixed amount in your petty cash fund. For example, let’s say your petty cash fund is $200. As people spend from the fund, they submit receipts for their purchases. When the fund gets low, you replenish it back to the original amount. The beauty of this system is that at any time, the cash remaining plus the receipts should equal your starting amount.

For example, if you have $75 left in cash and $125 in receipts, that adds up to your original $200. This makes it easy to track spending and spot any discrepancies.

How to managing your petty cash effectively

To keep your petty cash system running smoothly, we suggest implementing these practices:

• Assign a custodian. Make one person responsible for managing the petty cash fund. This person should be trustworthy and detail-oriented, as they’ll be in charge of distributing cash and collecting receipts.
• Keep it secure. Store petty cash in a locked box or drawer, and limit access to only those who need it.
• Document everything. Create a log to record every transaction, including the date, amount, purpose, and who received the money. Always get receipts.

Set clear policies for your petty cash

We’ve seen too many businesses run into petty cash problems because they didn’t establish ground rules upfront. Your petty cash policy should specify:

1. Maximum amount for single purchases
2. Types of expenses that can be paid from petty cash
3. Who has authority to approve petty cash expenses
4. How often the fund will be reconciled
5. Required documentation for expenses

How to track petty cash in your books

Even though we’re talking about small amounts, proper accounting for petty cash is crucial. When you initially fund your petty cash account, record it as a debit to the petty cash account and a credit to your cash account. When you replenish the fund, categorize the expenses based on the receipts collected — office supplies, meals and entertainment, postage, etc.

Regular reconciliation is important. We recommend counting the cash and matching it against receipts at least weekly, depending on how frequently you use the fund. This helps catch any discrepancies early and keeps everything running smoothly.

Need help managing your business finances?

Remember, while petty cash might seem like a small detail in your business operations, managing it well is part of building strong financial habits. Need help setting up effective financial systems for your small business? Explore the small business accounting services we provide.

Running a business comes with all kinds of costs, from payroll and rent to office supplies and software subscriptions. But what about miscellaneous expenses that don’t fit neatly into any specific category? While they may seem minor, these costs can add up quickly, and if not tracked properly, they can cause headaches at tax time.

What are miscellaneous expenses?

Miscellaneous expenses are business costs that don’t fall into standard categories like utilities, rent, or salaries. They are typically smaller, irregular expenses that are necessary for business operations but don’t warrant their own dedicated expense category.

However, not every random cost should be labeled as miscellaneous. For tax purposes, expenses need to be ordinary (common in your industry) and necessary (helpful for your business). If something is a major cost or regularly recurring, it’s better to categorize it under a more specific expense type.

Examples of miscellaneous expenses

While every business is different, some common miscellaneous expenses include:

• Business-related subscriptions and memberships

• Small office supplies that don’t fit into general office expenses

• Unclassified travel costs (like baggage fees or ride-share services)

• Minor repairs or maintenance

• One-time business gifts (within allowable tax limits)

• Incidental employee reimbursements

Why miscellaneous expenses matter

At first glance, miscellaneous expenses might seem like minor, insignificant costs. But when you add them up over time, they can represent a significant portion of your budget. Here’s why it’s important to pay attention to them:

• Budgeting accuracy: If you’re not tracking miscellaneous expenses properly, you might underestimate your actual business costs. This can throw off financial planning and lead to unexpected shortfalls.

• Tax deductions: Many miscellaneous expenses can be deducted on your business tax return, helping you lower your taxable income. However, the IRS requires proper documentation, so lumping everything into a vague “miscellaneous” category can cause red flags during an audit.

• Financial clarity: Properly categorizing expenses helps you analyze spending trends and find ways to cut unnecessary costs.

How to categorize and manage miscellaneous expenses

Since “miscellaneous” is a catch-all category, it can be easy to let it become a dumping ground for all unclassified costs. To keep your books organized, consider these best practices.

1. Set clear guidelines

Establish internal rules on what qualifies as a miscellaneous expense. If a cost is recurring or significant, create a separate category for it.

2. Use accounting software

Most accounting software allows you to create subcategories for miscellaneous expenses. This way, you can track specific types of costs without them getting lost in a general bucket.

3. Regularly review and reclassify

Don’t let your miscellaneous category grow too large. Review your expenses regularly and reclassify costs where necessary. If a particular type of expense keeps showing up, it may be time to create a new category for it.

4. Keep documentation

Save receipts and notes for every expense, especially for tax purposes. The IRS may require proof that an expense is business-related, so proper record-keeping is essential.

5. Consult an accountant

If you’re unsure how to categorize certain expenses or want to maximize your tax deductions, a professional accountant can provide guidance tailored to your business.

Need help managing your miscellaneous expenses?

Miscellaneous expenses may seem like a minor part of your financial picture, but they play an important role in budgeting and tax preparation. Properly tracking and managing these costs can help you stay organized, claim valuable deductions, and keep your business finances in check.

Need help managing your small business expenses? Explore our small business bookkeeping services.

What are incidental expenses?

Incidental expenses are those small, often unexpected costs that come up during regular business operations but aren’t part of your core business spending. They’re not planned purchases, but they’re necessary to keep things running smoothly.

These expenses typically fall outside your regular budget categories and might seem too small to track individually. However, they’re legitimate business expenses that can add up quickly if you’re not careful.

Examples of incidental expenses

You might be surprised at how many incidental expenses your business racks up in a typical month. Here are some common examples we see:

• Office supplies purchased on the fly when you run out unexpectedly

• Small equipment repairs or maintenance that wasn’t scheduled

• Last-minute shipping costs to get a rush delivery to a client

• Refreshments for an impromptu client meeting

• Parking fees when visiting clients or vendors

• Small tools or supplies needed for a specific project

• Emergency computer accessories when something breaks

The impact of incidental expenses on a small business

The real challenge of incidental expenses isn’t that they’re small, but rather how easily they fly under your financial radar. We’ve seen plenty of business owners get blindsided by these costs for several reasons:

• They’re often paid for out-of-pocket and forgotten before they make it to the books

• The small amounts might not seem worth tracking, leading to incomplete financial records

• They frequently fall into gray areas between expense categories, making them hard to classify

• Multiple employees might make these purchases, creating inconsistent recording methods

• Receipt management becomes challenging when dealing with numerous small transactions

How to manage incidental expenses effectively

While you can’t eliminate incidental expenses entirely, you can implement systems to keep them under control. Here are some strategies we recommend to our clients:

• Create a petty cash system with clear guidelines for what qualifies as an incidental expense.

• Use a dedicated credit card for small purchases to automatically track spending.

• Implement a simple receipt capture system. Most accounting apps now have mobile scanning features.

• Set up a monthly budget specifically for incidental expenses based on historical spending patterns.

• Review these expenses quarterly to identify any patterns that might indicate a need for better planning.

• Train your team on proper documentation procedures for small purchases.

Technology solutions for incidental expenses

If you’re overwhelmed keeping track of all those little expense records, there are some great tools that can lighten your workload. Modern accounting software like QuickBooks or Xero offers excellent expense tracking features, including receipt scanning and automatic categorization.

We’re also seeing more of our clients use dedicated expense management apps that integrate with their accounting software. These tools can help automate the process of capturing and categorizing small expenses, saving you valuable time.

Need additional bookkeeping support?

Sometimes, despite your best efforts, managing these expenses becomes too time consuming. That’s often when business owners come to us for help. A good accounting firm can set up systems that make tracking incidental expenses almost automatic, letting you focus on running your business instead of chasing receipts.

An accountant can develop a comprehensive expense management strategy that accounts for both major purchases and small, day-to-day costs. By bringing order to your expense tracking, you’ll have better insight into your business’s financial health and more accurate records for tax time.

Remember, while these expenses might seem minor, having a solid system for tracking them is crucial for maintaining accurate books and understanding your business costs. Looking for more guidance on managing your business finances? Learn more about the bookkeeping services we offer for small businesses.

Whether you’re a seasoned business owner or just starting out, chargebacks can throw a wrench in your accounting — and your cash flow. Read on to learn what they are, why they matter, and how to handle them effectively.

What is a chargeback?

A chargeback happens when a customer disputes a charge with their credit card company and gets their money back even after they’ve made a purchase from your business. It’s a financial tug-of-war: you’ve provided goods or services, but now the customer wants their money back through their credit card company instead of working directly with you.

What makes chargebacks especially tricky is timing. You might not know about a dispute until weeks after the sale, and by then, you’ve likely already recorded the revenue and possibly paid expenses related to that transaction. This delay can make your books messy if you’re not prepared.

Further, each credit card company handles chargebacks differently, which adds another layer of complexity. To effectively handle chargebacks, you need to be sure to comply with each card’s specific rules.

Why do chargebacks matter?

Beyond the immediate hit to your cash flow, chargebacks can have serious ripple effects:

• You might get hit with higher processing fees from your credit card company if you get too many disputes.

• You could lose your merchant account if your chargeback ratio gets too high.

• Time spent gathering documentation and fighting illegitimate claims takes away from time spent running your business.

• If you don’t properly record chargebacks, you’ll face tax implications that can complicate your returns. For example, you might overstate your income and pay more taxes than necessary.

• There could be an impact on financial statements that could affect business loans or investment opportunities.

What happens if you ignore chargebacks?

We’ve seen too many small businesses learn the perils of neglecting chargebacks the hard way. Ignoring chargebacks won’t make them go away; it’ll only make things worse. Banks typically give you 7-10 days to respond to a dispute. Miss that window, and you automatically lose the case.

In addition to the negative effects listed above, multiple losses can lead to:

• Frozen merchant accounts

• Placement on credit card networks’ warning lists

• Cash flow problems from unexpected reversals

• Damaged relationships with payment processors

How to record chargebacks correctly

When a chargeback hits, you’ll need to make several accounting entries:

1. Record the initial reversal as a reduction in revenue and accounts receivable.

2. Track any chargeback fees separately as a bank service charge expense.

3. If you lose the dispute, record it as bad debt expense. This helps track the true cost of chargebacks to your business.

Pro tip: Create a separate general ledger account for chargebacks to make tracking and reporting easier.

Common chargeback mistakes to avoid

Don’t fall into these common traps:

• Assuming all chargebacks are fraud when sometimes it’s just customer confusion. Assuming the worst can lead you to respond too aggressively to disputes, damaging customer relationships and missing opportunities to improve your processes.

• Waiting too long to respond to dispute notices. Missing response deadlines means automatic loss of the dispute and the revenue, plus you’ll still get hit with the chargeback fee.

• Not keeping detailed transaction records, including shipping confirmations, customer communications, and signed receipts. Without proper documentation, you’ll lose most disputes even when you’re in the right.

• Missing the signs of friendly fraud, where legitimate customers dispute valid charges. Failing to spot patterns in these disputes makes it harder to prevent them and could result in unnecessary refunds.

Tools and systems for managing chargebacks

You don’t have to handle chargebacks alone. Here’s what can help:

Accounting software solutions

Accounting software like QuickBooks can help track chargebacks through custom accounts and generate reports showing their impact on your bottom line. This software will set up automated alerts for unusual transaction patterns that might signal potential chargebacks. It also includes built-in reporting tools to monitor chargeback trends and identify problem areas.

Other helpful tools

• Chargeback prevention platforms that flag suspicious orders before they become problems

• Documentation management systems to keep transaction records organized and easily accessible

• Automated response systems that help you meet tight dispute deadlines

• Clear return policies and customer service processes that can prevent disputes before they escalate to chargebacks

When in doubt you can always reach out to an experienced accountant to help you manage chargebacks.

Ready to get your chargebacks under control?

We’re here to help you protect your business and keep your books accurate. If you need support with managing chargebacks and other financial challenges, explore the small business accounting services we provide.

It’s tax season, and instead of confidently submitting your financial records, you’re scrambling to locate receipts, fix errors, and reconcile accounts. Sound familiar?

This scenario affects many business owners. Neglected books cause stress and can lead to tax filing errors, missed opportunities, and even non-compliance issues.

Regular bookkeeping and accurate financial reporting are essential for smart business decision-making and tax audits. Without them, you risk losing sight of cash flow, overspending, or missing critical deductions. Signs your business might need a bookkeeping cleanup include unreconciled bank and credit card statements, missing data, and unpaid invoices.

But there’s hope: a practical bookkeeping cleanup checklist can help you regain control of your financial records, ensuring compliance, clarity, and peace of mind.

Preparing for bookkeeping cleanup

Preparing for the bookkeeping cleanup process doesn’t have to be complicated. Here are some tips for making it more manageable.

Gather all financial documents

Before anything else, gather your financial documents. These records are the backbone of your bookkeeping cleanup process and ensure you’re not overlooking important details.

Collect essential items like:

• Bank statements

• Credit card statements

• Receipts

• Invoices

• Payroll records

Having all your financial data in one place sets the stage for smooth and accurate bookkeeping.

Review current accounting methods

It’s worth reviewing your financial management to identify areas for improvement. If you use accounting software, double-check that your categories and tax codes are properly configured for accuracy.

Still not using accounting software? If you’re reading this article, chances are you might benefit from it.

Set clear financial goals

Setting clear goals is essential for boosting your financial health and staying on track during the bookkeeping cleanup process. Think about what you really want to achieve.

Maybe it’s simplifying expense categories, staying ahead for tax season, or getting a better grip on cash flow. Start small—like tackling one financial area each week—and be specific.

For example, aim to review all expense categories or finalize reconciliations by a set date. Measurable goals and knowing the benefits of bookkeeping make progress easier to see and keep you motivated.

Bookkeeping cleanup checklist

​​With all your financial documents accounted for, your accounting methods reviewed, and those financial goals set, let’s move on to the bookkeeping cleanup. Here’s a step-by-step checklist to guide you through the process and relieve stress from managing your books.

1. Reconcile bank and credit card statements

The first step in reviewing your finances is ensuring your books match your financial activity. The reconciliation process is about catching mistakes—like duplicate charges, missing transactions, or miscategorized entries—so your financial data is always reliable. Beyond accuracy, reconciling accounts can help you spot overlooked trends, avoid overdrafts, and ultimately make better decisions.

First, align your bank and credit card statements with your bookkeeping records or accounting software. Look for inconsistencies and confirm that every transaction is categorized correctly. This step ensures everything adds up, catches potential errors, and gives you confidence that your financial records are accurate and complete.

2. Review accounts receivable and payable

Once you’ve sorted out your accounts, it’s time to deal with your clients and vendors:

• Start by identifying unpaid invoices and following up with clients. Make sure your client information is current to streamline this process

• Then, review outstanding vendor bills and schedule payments to avoid late fees

• As part of your transaction review, double-check records for accuracy and ensure the vendor reconciliation aligns with your books

Staying proactive helps avoid surprises and keeps your finances running smoothly.

3. Organize financial records

A little organization goes a long way when managing your financial records. Start by digitizing paper documents, which makes them easier to find and reduces clutter. Even the IRS has started expanding its digital scanning efforts.

Next, ensure all transactions are categorized consistently and accurately to avoid confusion later on. If you don’t already have a system, create one using simple tools like spreadsheets or user-friendly software.

Here are some tips to get started:

• Use cloud storage for secure and easy access to your digital records

• Create clear naming conventions for files (e.g., “2025_January_Expenses”)

• Color-code files or add tags to highlight critical documents

• Schedule regular check-ins to review and update your filing system

• Backup your digital files regularly to prevent data loss

4. Verify financial statements

After organizing those financial records, you can verify your financial statements. They clarify your business’s performance, providing the foundation for sound decisions.

To start this process:

• Review income statements to confirm that your revenue and expenses are recorded correctly. Check your balance sheet to ensure assets and liabilities are listed accurately and align with your financial position.

• Next, examine cash flow reports to track how money moves in and out of your business. Look for discrepancies, such as missing transactions or errors in categorization, and correct them immediately.

Regularly verifying your financial statements helps maintain transparency and preserve your business’s financial health.

5. Analyze payroll records

Payroll mistakes can be costly, so it’s worth taking the time to double-check everything:

• Ensure employee records are current, including details like tax withholdings, deductions, and benefits.

• Go over payroll entries carefully to confirm they’re categorized correctly and match what’s actually been paid.

• Watch for errors like overpayments or missing deductions and correct them as soon as you spot them

Regular payroll audits help you avoid costly mistakes and keep you compliant with tax laws. Staying on top of this process saves you stress and keeps things running smoothly.

6. Check asset and liability accounts

Understanding where your business stands financially means diving into some key areas. Your depreciation schedules are a great place to start—ensure they’re accurate and reflect the current value of your assets. You should also evaluate your loans and liabilities to confirm they’re correctly recorded and up to date.

Check your asset accounts to ensure everything aligns with your business’s current position and financial goals. Keeping depreciation, loans, and liabilities accurate ensures your books are clean and ready for smart decisions, whether you’re planning for growth or preparing for an audit.

7. Audit expense accounts

Take a closer look at your expenses and look for ways to save money:

• Start by eliminating duplicate charges or outdated subscriptions that are no longer necessary. These minor cuts can add up to significant savings over time.

• Then, make sure all your expenses are categorized correctly. Accurate categorization gives you better insights into where your money is going and helps streamline your financial reporting.

By organizing and cleaning up your expenses, you’ll have a clearer picture of your spending and can make more informed financial decisions in the future.

8. Update the chart of accounts

Streamlining your bookkeeping structure is all about making things simple and functional. Review your chart of accounts and remove any outdated or redundant categories that no longer serve your business.

Also, ensure your account names accurately reflect your current business needs, making it easier to track finances and understand transactions at a glance. Simplifying and standardizing your chart of accounts creates a more organized system that saves you time and minimizes confusion moving forward.

Best practices for maintaining clean books

Now that your books are tidy, keep them that way with these tips.

Set up regular bookkeeping schedules

Consistency is key to keeping your books in great shape.

To stay on track, make sure to:

• Set aside specific dates each month or quarter for bookkeeping tasks

• Use calendar reminders or task management tools to stay consistent

• Dedicate time to reconcile accounts, update records, and review transactions

• Work with a bookkeeper to ensure everything is done correctly and on time

• Stick to a routine

Use accounting software

Accounting software can be a game-changer for small businesses. It not only saves time but also improves accuracy by automating repetitive tasks.

Tools like QuickBooks and Xero are especially popular for simplifying bookkeeping. Features like automated transaction categorization and report generation mean you spend less time on manual data entry and more time focusing on growth. Plus, they’re designed to meet small business needs, offering integrations and customizable options to suit your workflow.

Outsource your bookkeeping to professionals

Sometimes, bringing in a professional is the best move you can make. A skilled bookkeeper can help ensure compliance, spot errors you might overlook, and keep your books in shape.

Outsourcing bookkeeping lets you focus on running your business while experts handle the details. It’s beneficial if you’re experiencing rapid growth, dealing with complex finances, or simply feeling overwhelmed by bookkeeping tasks.

Need help with bookkeeping for your small business?

With Archer Lewis’s expertise, you can confidently manage your books without stress. Whether you’re following a bookkeeping cleanup checklist or looking to hire a bookkeeper, we’ve got you covered.

Learn more about Archer Lewis’s small business bookkeeping services and discover how we can help your business thrive.

For many small business owners, financial management can be overwhelming. That’s why it makes sense to keep organized with sound bookkeeping.

This essential practice ensures every financial transaction is tracked, every record is accurate, and all financial information is neatly organized. In short, bookkeeping best practices lay the foundation for sound financial health.

Accurate bookkeeping isn’t just a good idea—it’s vital to your financial success. It clarifies your financial picture, helps you avoid costly mistakes, and ensures you’re ready to seize growth opportunities. And when the complexities grow too big to handle, reaching out to professionals for small business bookkeeping services can make all the difference.

Let’s dive into the top nine benefits of bookkeeping that can transform your business.

1. Clearer picture of financial health

Keeping your books up-to-date gives you a clear view of your business’s financial health without the guesswork. With everything recorded and organized, you’ll always know where you stand:

• Track profitability: When your books are current, you can easily see how your revenue compares to your expenses, giving you a real-time view of your profitability

• Spot cash flow trends: Up-to-date financial records make it easier to spot patterns in your income and expenses, helping you prepare for financial transitions and avoid cash flow surprises

• Support strategic decisions: Accurate financial data gives you the confidence to make big moves, whether expanding your operations or navigating unexpected challenges

When your financial information is organized and current, you’re not just managing numbers—you’re making smarter, more strategic choices for your business’s future.

2. Enhanced cash flow management

Managing cash flow is a big deal for small business owners. It’s what keeps the lights on.

That’s why solid bookkeeping is so crucial. When you actually track cash flow, you can stay on top of your finances instead of just hoping for the best.

• Monitor income and expenses: By closely monitoring accounts payable and receivable, you’ll always know exactly when money is coming in and going out—no more nasty surprises.

• Avoid cash flow crunches: Regularly updating and checking your balance sheet helps you catch potential issues early. Whether it’s a slow season or unexpected expenses, you’ll be ready to handle it.

• Plan for growth: With accurate cash flow tracking, you’re not just staying afloat but setting yourself up for expansion. Knowing where your finances stand gives you the confidence to reinvest and grow.

Good bookkeeping will alleviate your cash flow worries and give you a clear path ahead.

3. Streamlined budgeting and forecasting

Accurate bookkeeping is your ticket to creating budgets and forecasts that actually work. When you know where every dollar is going, you can confidently plan your next steps, such as:

• Laying a foundation for budgets: A bookkeeper ensures all your financial data is accurate, giving you the groundwork for realistic short- and long-term budgets

• Setting financial goals: Proper financial planning helps you define and achieve your business goals, whether they involve increasing revenue, cutting costs, or expanding operations

• Allocating resources wisely: Expert bookkeepers handle payroll processing and help you pinpoint areas where you can save or invest for maximum impact

When your books are in order, budgeting and forecasting no longer feel like guesswork, and your numbers become a reliable guide to making good decisions.

4. More accurate financial records

Keeping everything organized and accurate, especially with proper general ledger management, helps prevent costly mistakes and ensures your data is rock solid.

Here are some key benefits of keeping accurate financial records:

• Keep records error-free: A reliable bookkeeper ensures transactions are logged correctly, so you’re not left sorting through errors down the line.

• Stress-free audits and reviews: With tidy, up-to-date records, audits and compliance checks become a breeze instead of a nightmare.

• Easier tax prep: Tax season is smooth sailing when your financial records are in great shape. No last-minute scrambles or missed deductions—just clean, organized data ready to go.

With solid bookkeeping practices in place, your financial records aren’t just neat and tidy—they’re tools you can rely on to make wise choices and stay ahead of the game.

5. Improved financial decision-making

Effective decision-making relies on high-quality data, and accurate bookkeeping is essential for providing that data. By keeping your financial data organized and accessible, you can:

• Spot trends and patterns: Identify shifts in your financial landscape before they become problems. For example, track which products or services are selling well and which might need adjustments.

• Evaluate performance: Understand what’s driving success and where you might need to course correct. Data-backed insights can help you boost marketing efforts or trim unnecessary expenses.

• Support big decisions: Solid financial data gives you the confidence to tackle major moves, like deciding on new investments, managing debts strategically, or scaling your operations.

Bookkeeping isn’t just about numbers—it’s about empowering strategic planning. With clear, actionable insights, you’ll feel ready to make bold choices and set your business up for long-term success.

6. Simplified tax preparation

Tax season doesn’t have to be a headache when you have bookkeeping and tax preparation services to back you up. It’s the backbone of a stress-free tax season, keeping everything organized and easy to manage.

Here are three key benefits of maintaining accurate bookkeeping for your financial records:

• Stay compliant: Bookkeeping ensures your financial records meet all tax compliance requirements, so you don’t have to worry about falling behind

• Organized tax records: Filing taxes becomes simple with all your documents in order. You won’t have to scramble for missing receipts or outdated reports

• Avoid penalties: Accurate records reduce the risk of errors and missed deadlines, saving you from costly fines

By staying current with your bookkeeping, you’ll make tax time much less painful.

7. Reduced risk and better compliance

Every small business owner wants to avoid financial risks, and bookkeeping plays a significant role in protecting you. By following tax planning strategies and implementing solid internal bookkeeping controls, you can:

• Adhere to regulations: Stay compliant with financial reporting standards and tax laws to make regulatory hurdles a breeze

• Detect discrepancies early: Regularly reviewing your records helps you catch errors or signs of fraud before they escalate into big problems

• Minimize penalties: With accurate and timely financial reporting, you can avoid late filings, fines, or compliance-related issues

By staying on top of your books, you’re building a safety net for your business, ensuring you’re ready to handle whatever challenges come your way.

8. Increased productivity and efficiency

Time is every small business owner’s most precious resource, and bookkeeping helps you use it wisely. By automating routine tasks with bookkeeping software and outsourcing bookkeeping to professionals, you can:

• Streamline operations: Automation features in bookkeeping software can handle repetitive tasks like data entry, freeing up your time for more important things.

• Focus on growth: With outsourced bookkeeping or software, you don’t have to spend hours buried in spreadsheets. Instead, you can use your time to grow your business.

• Achieve work-life balance: Delegating your bookkeeping services to experts means you can spend more time doing what you love—both at work and at home.

By outsourcing bookkeeping, you’re not just saving time—you’re ensuring your money is in capable hands, giving you the peace of mind to focus on your business.

9. More business growth opportunities

Good bookkeeping is your ticket to securing financing and attracting investment, which are essential for growth:

• Secure loans and investments: Lenders and investors rely on accurate financial statements to gauge your business’s stability and reliability. Clean, well-maintained books give them confidence in your potential.

• Showcase stability: Strong financial records showcase your business’s financial health, making building trust with potential partners easier.

• Unlock growth opportunities: With clear insights from your books, you’ll know when and where to seek funding for expansion, new products, or other strategic initiatives.

Bookkeeping goes beyond tracking numbers—it sets your business up for growth and opportunity. Whether you’re applying for a loan or pitching to investors, your financial records can make all the difference in driving your business forward.

Need help with bookkeeping for your small business?

Bookkeeping doesn’t have to feel like a never-ending challenge. At Archer Lewis, we understand how critical it is for small businesses to stay on top of their finances. That’s why we offer expert services to help you thrive.

From accurate financial records to improved cash flow and stress-free tax preparation, the benefits of bookkeeping can transform your business. It ensures financial clarity, streamlines operations, and provides a solid foundation for strategic decision-making. With Archer Lewis, you get tailored solutions designed to fit your unique needs, whether tackling taxes, handling payroll, or planning for growth.

When you hire a bookkeeper from Archer Lewis, you’re investing in more than just numbers. You’re gaining peace of mind and more time to focus on what you do best—running and growing your business. Learn more about Archer Lewis’s small business bookkeeping services.

As you review your dental practice’s monthly numbers, the phone rings with a patient who needs an emergency appointment. Does this sound familiar?

Many dental business owners struggle to balance patient care with effective financial management. Unique accounting challenges in dentistry, such as cash flow delays and navigating complex insurance claims, make this task even harder.

Keeping your practice financially healthy is key to keeping your patients happy. The good news is that smart accounting practices simplify this process, giving you the confidence to make better decisions and focus on what really matters: your patients.

Dental practice accounting makes running your operations smoother and your decision-making sharper. When you work with experts who genuinely understand dentistry’s challenges—like managing fluctuating cash flow or handling insurance claims—you’ll have the peace of mind to focus on your patients while knowing your finances are solid.

What is dental practice accounting?

Dental accounting is the specialized management of a dental practice’s financial health. It involves:

• Tracking financial transactions, which includes:

  • Revenues from patient services

  • Expenses like salaries, supplies, and utilities

  • Complexities of insurance claims and reimbursements

• Ensuring compliance with industry-specific tax regulations to avoid costly mistakes

• Providing financial insights to guide budgeting, investing, and growth planning

This isn’t just about crunching numbers—it’s about creating a financial framework that supports your practice’s success. Patients depend on your financial stability for seamless care.

By embracing dental accounting, business owners can:

• Run their practices more efficiently

• Reduce stress during tax season

• Identify opportunities for improving dental practice cash flow

With the proper financial foundation, dental practices can focus on delivering exceptional care while building long-term success.

Why is accounting important for dental practices?

Specialized accounting isn’t just about crunching numbers; it’s about giving your practice the tools to grow sustainably while providing the best care possible for your patients.

Dental practices can gain significant advantages by embracing specialized accounting solutions:

• Accurate financial insights: Tailor-made accounting gives you a clear picture of your financial health, which means making smarter decisions for the long haul

• Reduced stress during tax season: Staying organized year-round means tax time doesn’t have to be a headache

• Improved profitability through cost optimization: Spotting inefficiencies, like excess inventory or unused equipment, can save money and boost dental office profit margins

Challenges with dental practice accounting

Dental practices face several unique challenges in accounting, so they need tailored solutions to stay on top of their finances and run smoothly.

Fluctuating cash flows

Insurance companies often take their time reimbursing claims, making it tricky for practices to maintain steady cash flow. Late payments disrupt operations and add stress to the daily grind. On top of that, claim denials mean more time spent fighting for payments, which can delay revenue by months. When you add unpredictable patient payments, managing cash flow becomes even more complicated.

Inventory and equipment depreciation

Between dental chairs, X-ray machines, and countless supplies, it’s easy for things to get overlooked. Monitoring all this equipment is key to accurate financial reporting. Inventory mismanagement can result in overordering supplies or letting them sit unused, wasting money. Proper depreciation is also necessary to stay compliant and save money during tax and dental practice audits. However, it’s important to distinguish these from clinical audits focusing on patient care rather than financial compliance.

Tax regulations

Tax planning for dental practices can feel like navigating a maze. For example, you might qualify for equipment-related deductions, but knowing how to claim them takes expertise. Healthcare businesses like dental offices also have complex obligations, from employment taxes to benefit deductions. Failure to comply can result in costly penalties. Partnering with a dental CPA who understands tax planning for dental practices ensures you don’t miss a thing and helps maximize deductions.

Basic accounting principles for dental practices to understand

Getting a handle on accounting basics is essential for keeping your practice financially healthy and setting it up for long-term success.

Revenue and expenses

Understanding where your money comes from and goes is key to running your dental practice smoothly.

• Revenue: Income from services like cleanings and exams builds your financial foundation.

• Expenses: Costs, like salaries and supplies, keep your practice operating efficiently. Expense tracking for dentists ensures you’re not overspending.

By understanding your revenue and expenses, you can uncover opportunities to boost profitability, spot financial trends, and make smarter decisions that keep your cash flow in check.

Accrual vs. cash basis accounting

Accounting methods determine how and when your practice tracks income and expenses. Let’s take a closer look at these two methods and how they might fit your dental practice’s needs.

• Accrual accounting: Records income and expenses when earned or incurred, not when cash changes hands. This provides a more complete picture of financial statements.

• Cash basis accounting: This method records income and expenses only when cash is received or paid. While it’s simpler to use, it doesn’t offer the same depth of insight.

The key difference is timing: accrual accounting tracks transactions as they happen, while cash basis focuses on actual cash flow.

Chart of accounts

A chart of accounts is a tool that organizes your practice’s financial transactions into key categories, such as:

• Assets: What your practice owns, like equipment or cash

• Liabilities: What your practice owes, like loans or bills

• Revenues: Income earned from dental services

• Expenses: Costs incurred, such as salaries or supplies

A clear chart of accounts ensures the accuracy of your balance sheet, simplifies financial reporting, and helps you pinpoint areas for improvement.

What do dental accountants and bookkeepers do?

Managing dental practice finances can feel overwhelming, but that’s where a dental accountant or bookkeeper steps in. They handle all the critical financial tasks that keep your practice running like clockwork. Here’s how they help.

Manage financial records

Accountants keep your finances organized by recording transactions daily and reconciling accounts weekly. Their monthly financial reports highlight trends, pinpoint issues, and provide insights to help you make confident business decisions.

Budgeting and forecasting

Dental accountants help you stay on top of your financial planning by handling key tasks like:

• Budget creation: Crafting a dental practice budgeting plan that ensures income and expenses are in balance

• Variance analysis: Comparing your actual financial performance against your budget to spot unexpected deviations

• Cash flow forecasting: Using past trends and current operations to project cash flow and identify growth opportunities, keeping your practice financially stable

Tax planning and compliance

Accountants reduce tax planning burdens for dental firms by clarifying obligations, finding tax deductions for dental practices, and managing tax deductions and tax credits to ensure filings are accurate and stress-free.

Analyze financial performance

Getting a clear picture of your financial performance can make all the difference for your practice. Here’s how dental accountants help:

• Profit and loss analysis: They look at your revenues and expenses to find trends and opportunities to boost profitability

• Benchmarking: By comparing your performance to dental industry standards, benchmarking helps you identify what’s working well and where improvement is needed

Manage payroll and employee benefits

Dental accountants simplify payroll management for dental offices by setting up systems that ensure employees are paid accurately and on time. They handle benefits like health insurance and retirement plans while keeping your practice compliant with regulations, so your team stays supported, and everything runs smoothly.

Manage accounts receivable and payable

Dental accountants handle bookkeeping tasks by managing billing, collections, insurance reimbursements, and vendor payments to keep your practice’s finances organized and efficient.

Choosing accounting software for your dental practice

Although it cannot replace an accredited accountant, specific software simplifies financial management by automating various accounting services.

It tracks expenses, creates reports, and manages cash flow effortlessly. The revenue cycle in dentistry refers to managing patient billing and payments, ensuring the practice efficiently collects revenue while controlling operational costs.

Some top software picks for dental practices include:

• QuickBooks Online

• Xero

• Dentrix Ascend

When you’re looking for software, be sure to:

• Look for software that integrates easily with patient management systems

• Prioritize dental-focused features like revenue tracking and detailed reports

• Train your team to get the most out of your new system

Integrating your patient management systems

Integrating accounting software with patient management tools makes everything more efficient. Centralizing data ensures smoother workflows and accurate financial records.

Here are some best practices for integration:

• Choose software that works seamlessly with your current systems

• Set up clear processes and schedule team training

• Test integrations thoroughly to ensure everything runs without a hitch

Outsourcing your accounting services

If managing finances in-house feels overwhelming, outsourcing offers a practical solution for dental practices. One key benefit of hiring an accountant is their ability to handle complex financial tasks.

Other key benefits include:

• Expertise: Work with professionals who understand the unique challenges of dental accounting, from tax planning to compliance

• Time savings: Free time to focus on patient care while leaving financial management to specialists

• Accuracy: Reduce errors, get tailored tax tips for dentists, and ensure compliance with industry regulations

What to look for in a dental practice accounting partner

When choosing an accountant for your practice, prioritize:

• Relevant experience: A proven history of working with dental practices

• Proactive support: Clear communication and ongoing financial insights

• Strategic expertise: Guidance in optimizing profitability and managing growth effectively

Need help with your dental practice accounting?

Managing your dental practice’s finances doesn’t have to be overwhelming. Partnering with a small business accounting firm lets you focus on patient care while leaving the financial complexities to experts.

At Archer Lewis, we provide personalized accounting services, tax tips for dentists, and strategic guidance to help you grow. Our experienced team understands the unique challenges dental practices face and is ready to support you every step of the way.

Let us handle the numbers so you can focus on your patients. Learn more about our small business accounting services.

For small business owners, bank account reconciliation might sound like just another task on your endless to-do list. But this crucial practice can save you from headaches down the road and help you make better business decisions.

What is bank account reconciliation?

Bank reconciliation is like balancing your checkbook but for your entire business. It’s the process of comparing your internal financial records against your bank statements to ensure everything matches up. Reconciling your business accounts helps catch any discrepancies between what you’ve recorded and what’s actually happening with your money.

Why is bank account reconciliation important?

Reconciling your accounts probably isn’t the most exciting part of running a business. But it’s one of the most important things you can do to maintain your financial health. Here’s why:

• Catching errors early helps you avoid overdraft fees and bounced checks that can harm your business relationships and bottom line.

• Regular reconciliation makes it easier to spot unauthorized charges or fraudulent activity before they become major problems.

• Having accurate books gives you a clear picture of your cash flow, helping you make informed decisions about spending and growth.

• Come tax time, you’ll thank yourself for maintaining clean records that make filing easier and help maximize your deductions.

How to reconcile your bank account

While the process might seem daunting at first, breaking reconciliation down into manageable steps makes it much more approachable:

1. Gather your documents: you’ll need your bank statement and internal financial records for the period you’re reconciling.

2. Compare the opening balances to ensure you’re starting from the right point.

3. Mark off all matching transactions between your records and bank statements.

4. Note any bank fees or interest earned that might not be in your books yet.

5. Identify any outstanding checks or deposits that haven’t cleared.

6. Adjust your books for any errors or missing transactions you find.

7. Calculate the final reconciled balance — it should match your bank statement when you account for any outstanding items.

Common reconciliation challenges and how to solve them

Even seasoned business owners run into roadblocks during reconciliation. Here are some common challenges we see:

• Missing receipts or documentation can make it hard to verify transactions. We recommend scanning receipts immediately and storing them digitally to avoid this issue.

• That check you wrote on Friday might not clear until Tuesday, while the Square payment you received instantly shows up in your account. These timing differences are normal, but they can make reconciliation tricky. We recommend keeping a running list of pending items to easily track what hasn’t cleared yet.

• Multiple transaction types, from ACH payments to Venmo to credit card transactions, can complicate the reconciliation process. Using accounting software that can automatically categorize these different payment types helps keep reconciliation manageable and ensures nothing falls through the cracks.

• Manual data entry errors can throw off your entire reconciliation. Double-check your entries and consider using accounting software to reduce mistakes.

When to get professional help

While many small business owners start by handling their own reconciliation, there are times when bringing in a professional makes sense. Consider getting help if:

• You’re spending hours each month on reconciliation and could better use that time growing your business.

• You consistently find unexplained discrepancies between your records and bank statements.

• Your transaction volume has increased significantly as your business has grown.

• You’re not confident in your accounting skills and worry about making mistakes.

Keep your books balanced and your business growing

Regular bank account reconciliation is more than just good bookkeeping. It’s a fundamental practice that helps protect and grow your business. While it takes time and attention to detail, the benefits far outweigh the effort involved.

Need help with your accounting? Explore our accounting services for small businesses.

As small business accountants, we regularly meet business owners who’ve never looked at a balance sheet. So, exactly, what is a balance sheet in accounting? While keeping track of your daily income and expenses is crucial, your balance sheet tells an even more important story; it reveals your business’s overall financial health at a specific moment in time.

What is a balance sheet?

Basically, it’s an overview of your business’s financial position. While your profit and loss statement shows how your business performed over time, your balance sheet shows what you own, what you owe, and what’s left over right now. This information helps you make informed decisions about expanding your business, taking on debt, or investing in new equipment.

Why is a balance sheet important?

Your balance sheet isn’t just another financial document. It’s a powerful tool that helps you understand and improve your business’s financial health. Banks, investors, and potential buyers all look at your balance sheet to evaluate your business’ stability and growth potential.

Key components of a balance sheet

Understanding these components helps you read and interpret your balance sheet effectively:

1. Assets

Everything your business owns that has value. This includes cash, accounts receivable, inventory, equipment, buildings, and even intangible items like patents or trademarks. Your assets show what resources you have to generate future income and grow your business.

2. Liabilities

Everything your business owes to others. This includes accounts payable, loans, credit card balances, and future obligations like employee benefits or lease payments. Understanding your liabilities helps you manage debt and plan for future payments effectively.

3. Owner’s equity

What’s left after subtracting liabilities from assets. This represents the owner’s stake in the business, including initial and subsequent investments, plus retained earnings. A growing equity section usually indicates a healthy business.

4. Current vs. long-term classifications

Assets and liabilities are split into current (less than one year) and long-term categories. This distinction helps you understand your immediate financial position versus long-term obligations and helps with cash flow planning.

5. Notes and disclosures

Additional information that explains important details about your financial position, such as accounting methods used, significant upcoming changes, or contingent liabilities that might affect your business.

Essential financial ratios from your balance sheet

The real power of your balance sheet comes from the financial ratios it helps you calculate. Here are some key ratios that can guide your business decisions:

• Current ratio (current assets ÷ current liabilities): This tells you if you can pay your bills over the next year. A ratio above 1 means you’re in good shape.

• Quick ratio (current assets – inventory) ÷ current liabilities): Similar to the current ratio but more conservative since it excludes inventory, which can be hard to convert to cash quickly.

• Debt-to-equity ratio (total liabilities ÷ owner’s equity): This shows how much you’re relying on debt versus owner investment. A lower ratio usually indicates less financial risk.

• Working capital (current assets – current liabilities): This shows how much money you have available for day-to-day operations.

How to create a balance sheet

Creating a balance sheet follows a simple formula: Assets = Liabilities + Owner’s Equity. Here’s how to get started:

• List all your assets and their current values

• Categorize assets as current or long-term

• List all your liabilities and their current values

• Categorize liabilities as current or long-term

• Calculate owner’s equity by subtracting total liabilities from total assets

• Keep detailed records and update monthly

Common balance sheet mistakes to avoid

We often see small business owners make these mistakes when managing their balance sheets:

• Failing to reconcile accounts regularly

• Miscategorizing assets or liabilities

• Forgetting to record all liabilities

• Using incorrect asset valuations

• Not maintaining supporting documentation

How an accountant can strengthen your financial position

While you can create and maintain a balance sheet yourself, working with an accountant offers several important advantages. They can:

• Ensure all items are categorized correctly and nothing is overlooked

• Help you interpret what the numbers mean for your business

• Identify potential issues before they become problems

• Advise on how different business decisions might impact your balance sheet

• Implement proper accounting procedures and controls

• Help you use your balance sheet to make better business decisions

Making your balance sheet work for you

Remember, a balance sheet is a tool that can help you make better business decisions. The better you understand it, the better equipped you’ll be to grow your business successfully. Use it to:

• Monitor your business’s financial health

• Make informed decisions about investments and expansion

• Secure financing when needed

• Plan for future growth

• Identify and address potential financial issues early

Need accounting support? Learn more about our accounting services for small businesses.