Bookkeeping is probably one of the most important, yet most ignored, aspects of most businesses, whether big or small. This is quite possibly because bookkeeping is annoying and tedious. Most small business owners, and even big ones, find it difficult to decipher their books, especially after a long day of managing their daily business activities.
So why is it so important to keep track of your books? Simply because it will let you know how your business is performing, give you all the information you need to make business related decisions and most importantly, give you what you require to survive in the cutthroat world of business and make profits. Bookkeeping for small business is not a herculean task; all that you need is some discipline and patience. Ready to get started; here is what you need to do.
- Prepare a Ledger- A ledger is nothing but a record of the current balance in all your business accounts. Your ledger can be accounting software or the old hardbound ledger; it doesn’t matter.
- Enter Details of All Financial Transactions in the Ledger- Get hold of all the source documents for your business transactions and enter the details in your ledger. Make sure you identify which details are relevant before noting them down. Payments usually list the payee, date, category and the check number if a check is used. One of the first rules of proper bookkeeping is that you retain records of all business transactions for at least 6 years. This includes paper or electronic receipts, expense and sales details, payroll information and tax data.
- Note Revenue Data- Enter details of all money received by the business, except investments and loans, which should be tracked separately. Make sure you enter all relevant details of the payment like payee, date, amount etc .
- Accounts Receivable- Prepare a detailed schedule of expected incoming payments which is referred to as Accounts Receivable or AR. This will help you track payments that you are supposed to receive and follow up on them, thereby making sure that you get what is due to you. A common problem that small business owners face is that they often forget to either send out invoices or to follow up on them. Maintaining a ledger will help you to streamline this process.
- Accounts Payable- Another important part of bookkeeping for small business is keeping track of the payments that you have to make. Prepare a schedule of all future payments anticipated by your business, like rent, payroll, tax etc.; this is called Accounts Payable or AP. This will help you make payments on time and keep track of your business’ finances.
- Reconciling Ledgers with Bank Accounts- This is probably the most crucial part of bookkeeping; making sure that your ledger and bank account are in sync. This process is easy if you are using a software as most accounting software are built to link with your bank accounts and download the data; however if you are taking the old paper route, things can be a bit more complicated. Reconciling is normally a monthly task, but most accounting software are programmed to perform this weekly and sometimes even daily.
Now that we have established what you need to do, the next question is can you do it. Bookkeeping for small business by itself is not that bad, however time constraints and other operational priorities can mean that things don’t go the way you intend them to. If that’s true for you or if you feel bookkeeping is not your cup of tea, hire a professional bookkeeper. A professional bookkeeper can record all your expense and income details, prepare monthly financial reports and work with your accountants to prepare annual financial statements and file tax returns. There are numerous options available for you; don’t lose out all the good proper bookkeeping can do for your business.