Bookkeeping includes tracking and classifying all the financial transactions in your business. It’s maintaining track of what your business usually spends and what your business gets.
These tasks used to be maintained using books and ledgers, for that reason the name ‘bookkeeping’. In the beginning, the transactions would be noted down in daybooks, cashbooks, or journals and then taken to a ledger.
Bookkeeping software programs have now pretty much swapped out the need for physical books.
Why do small businesses need bookkeeping?
A legitimate, well-kept set of books is an excellent start to functioning a successful business. Here’s why:
- You are able to check that you’re generating more money than you’re spending. You’ll have well-performing financial information for organizing and budgeting decisions.
- You can see if a cash crunch is forthcoming and take steps to refrain from it, by viewing when you need to pay suppliers, and when you can hope payment from customers.
- You’re more likely to look for incorrect payments (or even fraud) that may well cost you money.
- You can complete accurate tax returns.
- Having your economical information organised helps make it easier for you to work with other parties such as loan companies, investors, and accountants.
How to do bookkeeping
The two most fundamental tasks in accurate small business bookkeeping are recording and reconciliation. Let’s break up them down.
Recording every transaction
Record your income. This was usually done by composing them into a cashbook or punching all of them into a spreadsheet. Business owners are now more very likely to download sales data straightaway into their books from point-of-sale or invoicing software.
Record your transactions. Every business-related purchase needs to be noted. You will need to hold onto the evidence of purchase if you plan to declare that expense as a tax deduction. Again, you can compose these details into a book or spreadsheet. Or you can automate the task so all the debits from your business bank account steady stream into your bookkeeping software.
You can record earnings and expenses at different times relying on whether you do cash or accrual accounting.
Reconciling every transaction
Reconciliation will require regularly cross-referencing your business books against your bank statements to check out that the transactions and balances match – and figuring out the reasons if they don’t. Regularly bank fees, interest payments, deposits, and payments that haven’t yet hit your bank financial records will need to be accounted for.
You might do bank reconciliation daily, weekly, monthly, or less often, relying on the number of deals going through your business. However, you will more than likely be required to reconcile your books before applying tax returns at the very least.
The quicker you reconcile transactions, the quicker errors can be seen and corrected. It’s far better to do it often – even daily – so the work doesn’t pile up.
Other small business bookkeeping duties
If you’re coming across as as bookkeeper for a small business, you may also be in charge for:
- accounts receivable (issuing bills and making sure they’re paid)
- accounts payable (paying bills on time)
- payroll (paying employees)
Professional bookkeepers also give other services, like serving with financial reports (profit-and-loss, balance sheet, cash flow report), and computing business performance. Bookkeepers are also often BAS agents and can allow filing your taxes.
How software can help
Many small businesses use online bookkeeping software to accelerate these jobs and cut down the possibilities for human data-entry errors. These applications can:
- pull transaction data straight from point-of-sale (POS) system, invoicing software, and banks
- dramatically accelerate up bank reconciliation
- automatically pay bills
- send programmed invoice reminders to people who owe you money
- tell you when gross sales invoices have been paid
- permit you to check cash flow from your phone
Outsourcing small business bookkeeping
If you’re too busy to do the bookkeeping for your small business, then you can look for someone to do it for you. Bookkeepers often permit you to choose different service levels relying on your budget. That implies you can start out with basic bookkeeping at a low cost and ladder up to more sophisticated services as your business grows.