Successful businesses need financial information to manage costs, manage cash flow, and generate profits. Without the correct data, you may not be able to make the best decisions for your business.
To understand the importance of bookkeeping, think of your company’s stakeholders. Investors, lenders, suppliers and regulators need accurate financial records about your company. Proper bookkeeping can help you provide more of this data.
Bookkeeping is the procedure of keeping track of all economic transactions of a company. Each financial transaction that occurs during business operations is classified, recorded, and organized by bookkeepers. Remember that accounting is not entirely the same as bookkeeping.
The bookkeeper’s books are used in the accounting process to generate accounting statements and accounts at the end of the year. An easy bookkeeping scheme that evidences each monetary contract the same way a chequebook does may be appropriate for tiny firms. Businesses typically use the double-entry accounting procedure with more complex financial operations.
This small business accounting checklist will give you peace of mind that you’ve covered all of your bases and are ready to move on to the next item on your to-do list.
Accounting for a small business
Set up a bank account:
After you’ve properly registered your company, you’ll need a place to put your profits. Having a second bank account keeps data separate and makes tax filing easy. It also safeguards your assets in the unfortunate events of bankruptcy, litigation, or an audit. On the other hand, keeping business financial records can increase the likelihood of approvals from creditors and investors down the road. Effective and accurate expense monitoring is the bedrock of good business bookkeeping. It’s an important step that helps you analyze your company’s progress, create financial statements, track deductible spending, prepare tax returns, and validate your filings.
Keeping track of your finances:
Before we start setting up a bookkeeping system, it’s essential to know what bookkeeping is and how it varies from accounting. The day-to-day practise of documenting transactions, categorizing them, and reconciling bank statements is known as bookkeeping.
You’ll need to decide how you wish to manage your books as a new business owner in the following ways:
You can do it yourself using tools such as Quickbooks or Wave. Alternatively, a simple Excel spreadsheet might be used. You also have the option of hiring a local, part-time, or freelance bookkeeper or make use of a cloud-based bookkeeper. You can engage an in-house bookkeeper and accountant after your company has grown large enough.
Choose a bookkeeping system:
Each transaction is only entered once in single-entry bookkeeping. If a client disburses you a certain amount, you only pierce that total in your column of the asset. Isn’t that correct? If your business is simple, then this strategy may work. On the other hand, most bookkeeping is complete using the accounting system of double-entry, which is comparable to Newton’s Third Law of Motion but for money.
Keep the books in order:
The balance and closing of the books is the final stage in basic bookkeeping. The totals of account debits and credits should match when you add them up at the end of the year. This way, your books are “balanced.” As you keep entering diary entries as debits and credits to accounts, these entries are ‘posted’ to the report in the universal ledger at the end of the era, and the account balances are adjusted accordingly.
Make financial statements:
When you have balanced your books, it’s time to dig further into what they signify. A depiction of the financial health of companies is created by summarizing the movement of money in each account. After that, you can utilize that image to make a judgment about the future of your company.
Here are some of the most popular bookkeeping financial reports:
Figures on a balance sheet
This file summarizes the assets, liabilities, and equity of your company throughout a specific period.
P&L profit and loss statement
This report, often known as an income statement, breaks down a company’s revenues, expenditures, and expenses over time (e.g., quarter). The profit and loss statement (P&L) allows you to compare revenues and costs and generate forecasts.
Statement of cash flow
The cash flow report is similar to the loss and profit statement, excluding non-cash expenses like depreciation. Cash flow statements indicate where your company makes and spends money, as well as its current ability and viability to make its payments.
Maintain a routine
Record all monetary transactions, including bill payments, sales, incoming invoices, and purchases, at least once a week. Also, make it a point to close your books regularly. You can do this at the very least, once a month. Another piece of advice? Make time to work on book volume when your mind is active and fresh, such as in the morning rather than late at night. When you’re looking at data that explains your company’s profitability and helps you map a path forward, you want to be at your best.
Keep your documents safe.
Small businesses benefit from proper record-keeping because it simplifies the process and ensures compliance with the rule. You, by no means, desire to squander time looking for a lost invoice from last month, and you surely don’t want to get into legal trouble.
It might not be a good idea to do it alone, as bookkeeping can be tricky unless you’ve had formal training in accounting principles. So, outsource to an accounting agency. You can also use accounting software or hire a freelance bookkeeper.
Bookkeeping gives all factual information about your firm, allowing you to make growth-oriented decisions. It aids in the presentation of your company’s historical financial success as well as future planning.
As a business owner, you can also consider getting insurance like business insurance or public liability insurance. These provide a layer of protection for your business.
Bookkeeping is also essential for keeping track of your company’s money. For both legal and financial management objectives, bookkeeping is a crucial function in your organization. You may gain a glimpse of your business’s fitness in the shape of financial statements such as balance sheets, cash flow income statements, and proper documentation.