To avoid money mayhem, you should get into certain habits regarding your business finances. Your particular system will vary depending on what type of business you are in and the complexity of your financial situation. Here are some tips for a typical small service business.
Always reconcile your bank statements. In this way to can track missing checks and actually know your current bank balances.
Enter every trannsaction into your check register. Even if you use accounting software, you will need basic information of what went to whom and when so that you can enter the information later.
Photocopy checks you receive from customers. The photocopy can be matched to the invoice or filed in the customer's file. If you write checks to others, your bank will give you the cancelled check. For checks you receive, this is not the case.
Only pay business expenses with a business account. Do not use personal funds to pay for business expenses. This makes your accounting difficult and can distort your financial picture
File your receipts in monthly (or weekly) folders. Categorizing the hard copies is difficult. When the transactions are entered into your accounting system, choose an appropriate category. Using a time based paper files also allows you to see when you can start to purge some of the older information
Keep cash transactions to a minimum. Try to use checks or a credit card. You should keep your cash account up to date and reconciled. However a petty cash drawer always creates errors.
Keep your personal finances in good shape. Keep your personal debt as low as possible. Pay off your credit cards and car loans. You may run into a cash short fall on the business side from time to time. If your monthly debt load is high on the personal side, this could cause severe stress.
Also on the personal side, try to stick to a weekly allowance or budget. The less you need to withdraw from the business account for salary, the better. At the end of the year, if you are profitable, then you can use the extra funds to invest in the business or withdraw for personal use.
Build up an personal emergency fund. There may be months where there is not extra revenue on the business side. Try to have six months expenses in your personal accounts.
Monitor everything. You may never have kept track of your finances in your personal life. This is an absolute requirement if you have a business. Also try to track yourself on the personal side. You can see where the money is going and what your personal needs really are.