Bookkeeping basics: A guide for small businesses

One benefit of virtual bookkeepers is that they offer lower pricing compared to local bookkeepers. Thanks to the cloud-based functionality, you can access your files from anywhere in the world and on any device. The obligations about your debt service are crucial in terms of solvency and credit. bookkeeping tips for small businesses Kelly Main is a Marketing Editor and Writer specializing in digital marketing, online advertising and web design and development. Before joining the team, she was a Content Producer at Fit Small Business where she served as an editor and strategist covering small business marketing content.

• You’re also responsible for communicating with your employees and allowing them to know the financial state of your firm.
• A separate bank account is the first step in distinguishing between business and personal finances.
• Accountants are members of statutory organizations and registered accountants might call themselves CPAs (Certified Public Accountants) or CAs (Chartered Accountants).
• There are different ways to organize files, depending on what you need to store.

Plus, you can ensure your payroll account has enough money even if the primary account suffers. Set a date early enough each month to give you time to prepare the paperwork. A safe way to protect the cash flow is to track how long it takes for the clients to pay the invoices. Remember that assets are what your company owns, and liabilities are what it owes. A balance sheet can help you decide whether your business can meet all its financial obligations. Unlike accounting, bookkeeping does not require any certifications.

Invest in an accountant.

This provides more accuracy and insight into the business’s financial position. Another type of accounting method is the accrual-based accounting method. This method records both invoices and bills even if they haven’t been paid yet. This is a highly recommended method because it tells the company’s financial status based on known incoming and outgoing funds. Because the funds are accounted for in the bookkeeping, you use the data to determine growth. Bookkeeping is the process of tracking income and expenses in your business.

Unless you’re using a bookkeeping service to alert you when a problem arises, you’ll need to track your income and revenue closely. This can be challenging with the other commitments of operating a small business. Learn how bookkeeping can streamline business practices with small business bookkeeping tips.

Bookkeeping tips for small businesses

A journal, general ledger, and chart of accounts are necessary for double-entry bookkeeping. Bookkeeping is essential not just to the smooth operation of a small business, but it also can figure into whether the business survives. About 20% of new small businesses close within a year, and two-thirds don’t make it to 10 years, according to the Bureau of Labor Statistics. Among the most common reasons for failure is low cash flow, which can happen when a business isn’t diligently maintaining its accounts. Common bookkeeping errors include transposing numbers, entering data in the wrong account, adding or leaving out digits or decimal places, or duplicating and omitting entries. The small business bookkeeping tips above help to minimize these errors.

Starting a bookkeeping business is something you might be interested in if you naturally love numbers and want to break free of the traditional nine-to-five. It’s possible to offer bookkeeping services to clients in person or remotely, which may be ideal if you would prefer a work-at-home job. Mobile functionality – Being able to access the software on a mobile device allows you to stick to your bookkeeping schedule, even when you’re on the move.

The LIFO accounting method

Record and categorize your documents every week during your weekly bookkeeping session. Quick, regular audits of your documentation and transactions will ensure that you’ll never have a stressful night’s sleep—at least as far as your books are concerned. Take the time to organize your records, whether that means buying a filing cabinet or breaking out the label maker. Saving your records in the cloud also ensures that they’re easily accessible in a digital format from any device. Making sure your records are well-organized can save you a big headache if you’re ever subjected to an audit. You’re also responsible for communicating with your employees and allowing them to know the financial state of your firm.

• This saves you from tracking important financial information for the end of the fiscal period at the last-minute.
• While a bookkeeper is focussed on day-to-day transactions, the accountant concentrates on the strategic financial operations.
• This way, when you make a purchase, you can immediately file the receipt in the applicable expense category, saving you time when you need to make your expense calculations.
• Your bookkeeping system should make logging your income as simple as recording expenses.

It includes importing and categorizing transactions properly, reconciling these transactions and making sure they’re recorded according to your entry system and accounting method. Before you take on any small-business bookkeeping tasks, you must decide whether a single- or double-entry accounting system is a better fit. The entry system you choose impacts how you manage your finances and how your bookkeeping processes will work.