What is bookkeeping?
Bookkeeping is the systematic recording, organization, and maintenance of a business’s financial transactions. It involves tracking income, expenses, assets, liabilities, and equity to provide a comprehensive overview of the financial health of the business.
Why do I need bookkeeping?
Firstly, it provides unparalleled financial clarity, offering a clear overview of your business’s financial position, including revenue, expenses, and profitability. Additionally, meticulous bookkeeping ensures compliance with IRS regulations, minimizing the risk of penalties or audits. Moreover, it enhances access to funding, as lenders often require access to well-organized financial records, increasing your chances of securing loans or other financial opportunities.
There are two primary methods for bookkeeping of small businesses:
–Single-entry bookkeeping is a simple method suitable for sole proprietors, involving a cash sales journal, cash disbursements journal, and bank statement synchronization
–Double-entry bookkeeping is deal for businesses with complex financial structures, requiring recording transactions in at least two accounts as debits or credits. Often integrated into accounting software like QuickBooks.
6 Steps for successful bookkeeping
Now that you understand the importance of bookkeeping, let’s discuss how you can implement successful bookkeeping practices for your small business. Follow these steps, and you’ll be on your way to a well-organized financial system:
Step 1: Set up separate business accounts
Opening dedicated business bank accounts and credit cards helps you maintain a clear distinction between personal and business finances. It simplifies bookkeeping and ensures accurate record-keeping.
Step 2: Choose a bookkeeping method
Determine the bookkeeping method that works best for you. You can either opt for manual bookkeeping using spreadsheets or use accounting software that automates the process such as Quickbooks , Xero, Sage etc. Find a method that suits your comfort level and budget.
Step 3: Track income and expenses regularly
Consistently record and categorize all income and expenses. This practice enables you to generate accurate financial reports such as Profit and loss report and Balance sheet report, which help you identify areas for improvement.
Step 4: Reconcile accounts monthly
Regularly reconcile your bank and credit card statements with your bookkeeping records. This process helps you catch any discrepancies or errors and ensures the accuracy of your financial data.
Step 5: Maintain proper documentation
Keep all your financial documents, such as receipts, invoices, and bank statements, organized and easily accessible. This practice saves time during tax season and provides clarity in case of an audit. Choosing a cloud-based system like Dropbox, Evernote, or Google Drive is a wise decision to avoid dealing with faded or illegible receipts. Additionally, explore specialized receipt-tracking apps like Shoeboxed for a more efficient and organized management of your financial documents.
Step 6: Seek professional assistance if needed
Choosing between DIY and professional bookkeeping is a common decision for small businesses. Here’s a guide to help you determine the best approach for your needs.
–The DIY Approach: For small businesses operating on a limited budget or as side projects, the DIY route can be a viable option. Consider consulting with a CPA or bookkeeper initially to ensure correct practices. Many businesses in the early stages can manage using simple spreadsheets or accounting software available in the market.
–Outsourcing to a Professional: As your business grows and bookkeeping becomes a time-consuming challenge, outsourcing to a professional may be the solution. If maintaining your books consistently becomes difficult, hiring a professional, like our online bookkeepers at QbtConsulting, can provide the expertise needed. We can handle your books remotely, offer user-friendly software for financial statements, expense tracking, and streamline the tax preparation process.
