Infographic | Basic Bookkeeping for Small Businesses
As an entrepreneur, you make decisions every day that influence the success or failure of the business. Decisions can range from small to big, from deciding what responsive design to use for your website to major expenditures like investing on an office space. Financial matters are definitely big decisions. It makes sense, therefore, to know basic bookkeeping to monitor expenses and have a full picture of your company’s financial health.
Bookkeeping is one aspect of accounting that refers to record-keeping. It involves the recording of all financial transactions and relevant activities of a business.
Small businesses can benefit from having in place a comprehensive bookkeeping plan that takes into account all features and influencing factors in the company.
Let’s review several more aspects of basic bookkeeping and how they relate to your business.
- Preparation of source documents for operations, financial transactions, and other events. This also involves checking cash on hand, incoming and outgoing payments, and recording customer billings.
- Analysis and entry of transactions and financial effects (is the business better off, worse off, etc.), recording customer payments, updating payroll file, and balancing checkbook, among others.
- Making entries of financial reports and other effects into journals with accompanying references to source documents.
- Perform end-of-period procedures — this covers different periods such as daily, weekly, monthly, quarterly, and annual bookkeeping.
In basic bookkeeping, accounting begins with deciding whether or not the company’s books will be managed through accrual or cash accounting.
Accrual accounting transactions are recorded when they happen, even if the client hasn’t paid for the product or service.
For instance, if your company performs a service in September and bills a client for it, it is recorded in “accounts receivables.”
Cash accounting, on the other hand, is exactly the opposite, and transactions are only recorded after cash has been exchanged.
Accrual accounting necessitates that businesses perform double-entry bookkeeping because transactions are recorded when bills are sent and again after payment is received.
Under a cash accounting system, these transactions would never appear on the books until the client clears payment.
Basic Bookkeeping Needs: Software and Spreadsheets
All accounting procedures assist in tracking cash flow of income and expenses, calculate tax payments, manage payroll, and to produce financial reports. Successful bookkeeping requires a certain level of accuracy and good attention to detail.
Not many companies are successful at managing the books by using basic spreadsheets alone. This method of bookkeeping can work for small businesses and startups; however, it proves impractical once the business grows larger.
As your company grows, it will be necessary to use specialty accounting software in place of spreadsheets. Your choices include cloud-based solutions and desktop applications.
Choose accounting software based on the size and nature of your business, and keep an eye on the growth pattern. Most accounting apps will allow one-time payment and subscription-based services depending on your needs; and mobile versions are available.
You can start with a free trial to get a feel of the software and to see whether it captures your accounting details and fits in with your company.
We recommend GnuCash for those looking to try out a free downloadable program to track expenses, income, stocks, and bank accounts.
WaveAccounting is a popular accounting service, albeit cloud-based. The good thing with a cloud service is that you will be able to access all your accounting details from any location provided you have an internet connection.
The option of checking your books from your phone will give you flexibility as you move around your city and when traveling.
Here are a few tips for basic bookkeeping for small businesses.
Always plan for expenses. Note any major expenses that will likely be coming up within a couple of years and plan accordingly. Bear in mind the ups and downs of the business and how they will affect your ability to save and spend during those times.
Track expenses. Execute a plan to track your expenses so that you don’t miss out on tax write-offs and consider using business credit cards to make it easier for tracking. You can also make notes in your calendar to prepare for audits and other important events.
Record all deposits. You can use a variety of tools to keep track of your deposits including a pocket notebook and pencil, financial software, or an Excel spreadsheet.
Save money for taxes. Once you calculate what you’re going to pay, start putting money aside for it.
Monitor your invoice. Late payment can hurt your cash flow so find a way to track your billing and put a process in place to handle late billing.
Below is an infographic that can give you more ideas on how to do some basic bookkeeping for your small business.
Remember, as a business owner you need to have a solid handle on your numbers for your company to thrive. This is why successful entrepreneurs insist on having accounting procedures and following them.