Bookkeeping has long been considered the boring part of running a business, something that only accountants and other financial types need to worry about. Yet as small business owners become more sophisticated in their operations, they’re realizing just how important it is to keep up with their finances, especially now that so many of them use QuickBooks or similar software to do their bookkeeping. If you’re on the fence about hiring an outside bookkeeper, here are some basics of bookkeeping for small businesses that you should know.
What is bookkeeping?
Most people think of bookkeeping as a dull, tiresome task that they just want to forget about. However, bookkeeping is actually an important part of running a business. Tracking your accounts, profits and losses, helps you prepare financial statements and reports, which let you know the status of your finances. You need these to make business decisions based on accurate information. Keeping good records will also help you save time and effort by avoiding mistakes caused by incomplete or inaccurate information.
Why do I Need Bookkeeping?
Keeping tabs on finances is necessary for keeping your business on the positive side of the financial columns. Not only will it help you figure out where your money is going, but it can also help you cut down on spending by revealing what expenses are unnecessary.
How do I get started with bookkeeping?
It’s a good idea to get started with bookkeeping as soon as you start a new business. This will allow you to make sure that you are keeping track of your finances properly and on time so that you can start saving money. Once you have the hang of things, it should take about thirty minutes per month. You’ll need a basic understanding of bookkeeping principles, dedicated time, and a basic understanding of spreadsheets or online bookkeeping software like QuickBooks Pro or Xero.
Simply put, you will want to keep track of your business income and expenditures and document where the money is coming from and where it is going.
How should I record my expenses?
When recording expenses, you have two options: a cash system or an accrual system. Cash systems only record transactions when the money is actually spent. Accrual systems record transactions when the service was provided or goods were delivered.
Cash systems are easier because you don’t have to worry about remembering what happened in the past, but they don’t account for the future, which can lead to cash flow problems.
To get started keeping a list of all the income which comes into your business. This could be through direct sales, or through services that you offer. Also, keep track of your expenses. List the who the payment was made, the reason for the payment, and the date of payment.
You can do this by simply keeping a running list for each year of your business. It is easier if you can utilize a spreadsheet to track your profits and losses, but it’s not absolutely necessary as long as you document each of those in some way that is easy to track.
What are some Common Mistakes?
It is easy to make mistakes in bookkeeping that can lead to expensive consequences. Here are a few common ones you should watch out for:
- Not recording transactions at the right time.
- Not taking into account all costs when determining profit.
- Failing to record transactions correctly, leading to overpaying or underpaying customers, employees, or suppliers.
- Neglecting taxes.
Summing Up the Basics of Bookkeeping
- Set up a system
- Have a routine
- Track expenses
- Save receipts in one place. The best method may be to store your receipts digitally.
- Use software or an app
The further you get behind each quarter means there is so much to try to figure out last minute. Keeping track on a weekly basis will help you to stay on track. But, we know that it can be difficult while also running your business. If you feel like you’re spending too much on managing your books, then it might be worth it to invest in some help that will allow you to stay in control of your finances and business management.
Of course we offer bookkeeping, and payroll services here at Cowdery Tax and Business Solutions. If you feel that bookkeeping is simply an overwhelming task that you’d like to not have to manage, give us a call to see just how affordable our services are.
This information is not intended as legal or tax advice. Cowdery Tax and its representatives does not offer legal or tax advice. We offer services for business bookkeeping, payroll, tax payments, and personal tax filings. We share information that is publicly available. Tax laws may change with or without notice that may alter or change the information contained in this publication.