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Bookkeeping

How to do bookkeeping for small businesses: A step-by-step guide

By July 20, 2022December 18th, 2024No Comments

small business bookkeeping tips

While it’s possible to learn bookkeeping basics on your own, there may be situations when seeking professional help is advisable. Complex financial issues, tax planning, and ensuring compliance with regulations are areas where the expertise of a bookkeeper or accountant can be invaluable. It’s easy to overlook small expenses like office supplies or minor subscriptions, but these costs can add up over time and significantly impact your business expense bottom line. Failing to track these expenses can also lead to missed tax deductions. Small businesses often work with tax advisors to help prepare their tax returns, file them and make sure they’re taking advantage of small-business tax deductions. Though you may not work regularly with a tax specialist year-round, you’ll want to connect with one sooner rather than later so you’re not rushed come tax time.

Stay Organized and Develop a Routine

Bookkeeping over the course of a few years also makes it easier for you to estimate how much tax you’ll owe. This means you’ll have an accurate valuation of the item and your expenses related to depreciation are accurate. Historical cost may factor in when you’re accounting for lump-sum purchases. Whichever accounting method you choose, the best way to make sure you’re dotting your i’s and crossing your t’s is to maintain order in the way you manage your bookkeeping.

small business bookkeeping tips

Maintaining cash flow & improved financial management

Spreadsheets, such as Microsoft Excel, can be used for simple bookkeeping. More commonly, entrepreneurs use comprehensive accounting software like QuickBooks that can handle a larger volume of transactions and provide a deeper analysis. QuickBooks Live Expert Assisted can help you streamline your workflow, generate reports, and answer questions related to your business along the way. Your accounting ledger serves as the hub for all your financial information—in particular, all your accounts and transactions. QuickBooks Online users have year-round access to QuickBooks Live Expert Assisted to set up the software, then help manage finances. Keeping your financial documents organized and easily accessible is critical for effective bookkeeping.

Learn When It’s Time to Outsource

  1. The bookkeeper enters relevant data such as date, price, quantity and sales tax (if applicable).
  2. Luckily, most modern-day bookkeeping and accounting  software have tools that make cash flow tracking a breeze.
  3. But for many new business owners, the world of debits, credits, and financial statements can feel like a minefield.
  4. These errors can lead to serious consequences, such as cash flow problems, tax issues, and difficulty securing funding.
  5. By following the tips and best practices outlined in this guide, you’ll be more equipped to set a strong financial foundation for future growth, profitability, and ultimate success.

Additionally, the aged accounts receivables and aged accounts payables reports are helpful in knowing which customers have not paid and which vendors are yet to be paid. These reports will help you gain greater insights into the financial health of your small business. As a responsible small business owner or bookkeeper, you should be aware of your company’s revenue streams. With accurate bookkeeping, you can tell how much your business is making in terms of income and track your accelerated development program spending to ensure that you have enough cash on hand to cover your business expenses. Proper financial records make it easier for you to analyze the financial state of your firm and determine areas that need improvement. Fortunately, small business owners don’t need to be experts in mathematics to find success when doing their own bookkeeping.

When you start a new business, you need to set up a chart of accounts to journal transactions in any of the five categories including assets, liabilities, expenses, revenue and equity. This chart of accounts is used to gather statements, analyze progress, and locate transactions. Tracking and reviewing your income and expenses can help you assess the health of your business and plan for future growth. You can follow our guide on how to make an income statement to accurately evaluate your business’s financial health. By tracking your business expenses, you can increase profit margins and optimize your income tax return. Instead of calculating expenses every two weeks for payroll processing, you can keep records of the everyday business expenses.

Best Bookkeeping Tips for Small Businesses

Ideally, you also want to find a bookkeeper or accounting firm that has experience in your industry. Just as reporting standards vary regionally, they also vary by industry. When in doubt, don’t be afraid to talk to other business owners and find out how they hired a bookkeeper and what bookkeeping methods they prefer to use.

As a business owner, you’re responsible for reporting crucial financial data about your firm to potential investors and other stakeholders. Bookkeeping programs that incorporate graphs, charts, and other visual aids make it easier to increase data precision and improve communication when you’re wooing investors. Even if you aren’t planning on growing any time soon, you need to have a sense of how much money is coming in versus what is going out. On top of that, you need the data used in bookkeeping to file your taxes accurately. Once the entries are assigned to the correct accounts, you can post them to the general ledger to get a bird’s-eye view of your current cash status.

Bookkeepers record and classify financial transactions, such as sales and expenses. They maintain accurate records of daily financial activities and manage accounts payable and accounts receivable. The two key accounting systems are cash accounting and accrual accounting. If your business is still small, you may opt for ‌cash-basis accounting. If you carry inventory or have accounts payable and accounts receivable, you’ll likely use accrual accounting. The first step you’ll need is a business bank account, which allows you to keep your personal and business expenses separate.

Accurate bookkeeping helps you trace your firm’s financial records and evaluate its performance levels. You can look back, see patterns, and even draw comparisons with previous business years. Bookkeeping allows you to have a greater understanding of the areas within your business where you can trim costs. Individuals who are successful bookkeeping professionals are highly organized, can balance ledgers accurately, have an eye for detail and are excellent communicators.

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