Business

The ABCs of Small Business Bookkeeping

Small business bookkeeping involves classifying and recording financial transactions, which form the basis of your accounting system. As the main goal of a business is to make a profit, accurate bookkeeping guarantees that you are using your funds effectively. Bookkeeping also helps small business owners make sound decisions to facilitate their growth. We’ll provide a basic overview of small business bookkeeping in this article.

Track Inventory You need a point of sale (POS) system to track inventory and costs if you sell physical products. These systems are highly efficient and can create purchase orders, verify received ones and enter the bill so you’re sure you can pay your suppliers on time.

Revenues

Your small business survival depends on how many products or services you sell, and credit and cash sales are two main types of sales for small businesses. You consider when payment was received to differentiate between a cash and credit sale.

Expenditures

All companies incur expenses in order to grow. Normally, these are either classified as recurring or non-recurring. Among the main recurring expenses are insurance and rent. These are made on a consistent basis and you can pay them right from your bank account. The other category of expenses includes unplanned ones, such as equipment repair.

Now, here’s how to proceed to bookkeeping.

Accounts Setup

It always starts with accurate account setup to best manage your business’ finances. Accounts are comprised of different types of financial transactions. There are 5 account types:

1. Assets = Equity plus Liabilities

Your equity (what you own) is balanced against all claims against your business to yield the assets. The asset account includes cash and fixed assets like machinery and land.

2. Revenue and income – your revenue and income is the money you make from sales.

3. Liabilities – debts and obligations

4. Equity – what’s left over after business liabilities are deducted from assets. This involves stocks and other things that represent your interests in the company.

5. Expenses or Expenditures

In this account, you record the funds that are taken out of your business to pay for services and products.

Record Transactions

The second step is to record how much money is coming to and leaving your business. Most bookkeepers make use of a double-entry system. You’ve heard of this concept before. It’s where there are always two entries: for every transaction entered into an account, another equal and opposite one is entered in a different account. A credit and debit is recorded for every transaction using double-entry small business bookkeeping.

Close Books

To close your books, you need to have a total matching what you get when you tally up your credit and debt. Most small businesses balance their books at the end of every month, fiscal quarter, or fiscal year. The balance sheet provides an overview of your assets, equity, and liabilities over a given period of time.

Cash flow statement

The cash flow statement lists where your business is making and spending money and normally contains the following:

● Operating activities – Lists the amount of cash that was made from the day-to-day running of your business.

● Investing activities – This part of the cash flow statement shows how much cash came from the assets you bought for your business.

● Financing – The financing section of the cash flow statement shows the cash that has come in or gone out of your business to finance your business activities.

Profit and Loss Statement

Also known as the income statement, this gives an overview of your revenue minus your expenses over a given period of time. It lets you see how much revenue you have generated from your products and services. You can identify where you are investing funds in relation to your expenses. A review of the P&L statement makes it possible to spot business trends and make more accurate predictions and budgets.

After you become familiar with the different accounts to set up, you need to set up your bookkeeping accounts. We don’t recommend manual bookkeeping with Excel due to a high likelihood of errors and the great effort and time it takes to set up formulas to properly close your books. Cloud-based POS Software is the best option if you want to use a system that is easy to navigate. A lot of business owners use these types of accounting and small business bookkeeping software to simplify their accounting.

A major benefit is full-time access to your accounts anywhere in the world and on any device because the data stays in the cloud. What is more, cloud accounting software can automate certain bookkeeping tasks, like integration of your personnel costs into your accounting software.

Common Mistakes

Develop a schedule – Make a calendar entry for bookkeeping tasks and a record of all your financial transactions.

Choose the right tools – As you can see, bookkeeping can become very complex as your business grows. Choosing the right POS system can make the difference between producing useful financial statements and being confused about the financial soundness of your small business.

Keep a record of every transaction – Every transaction must be recorded, even the smallest. Failure to do this may make it impossible to balance your books.

Be strict with account categorization – The number of accounts will grow in direct proportion to your business. You may be tempted to make your life easier and categorize your transactions incorrectly. When it’s time to close your books later, this approach will cause you headaches.

Keep your records safe – Accurate, readily-available data helps your business to comply with the law and is recommended for better bookkeeping. You should be able to provide every single financial record for your business if a government body comes to audit you.

Final Thoughts

Just as choosing the right small business bookkeeping software is key for your efficiency, so is selecting the most appropriate workforce management tool. Always look for one that integrates with a trusted tool seamlessly to help you to create a full-scale, comprehensive business management solution to ensure the best outcome.

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