Organizing your small business’s financial transactions can be a complicated process. Bookkeeping is the process of recording and classifying your transactions so that an accountant can interpret the information. Accurate bookkeeping is not only essential to your business’ long term success but also protects it from auditors and expensive fines. Modern bookkeeping usually involves using software on a computer to track transactions, sending invoices, making payments, managing accounts, and preparing final statements. You can also hire a professional bookkeeper to do the work for you, this is often the best approach for larger businesses or less number-savvy small business owners.
To get started you need to think about what type of business you have. Is it a small in-home business, that doesn’t have many transactions? Maybe you have a larger business with multiple employees and offer credit to your customers. Single bookkeeping with cash accounting is ideal for smaller businesses. Single bookkeeping is a lot like balancing your checkbook, one entry for each transaction. For larger, more complex businesses a double-entry system is your best bet.
Let’s look at the basic types of accounts you’ll need to know for your balance sheet:
Assets: Assets are usually tangible goods/resources that a company owns, such as a building, land, equipment. This also includes your cash and marketable securities accounts, stocks.
Liabilities: This includes both current and future liabilities. These are things like your accounts payable, business loans, and taxes owed.
Equity: Part of equity accounts are any claims that exist against the company. It is also the remaining value after you subtract your assets from your liabilities.
Next, we will take a look at accounts on your income statement:
Revenue: All the income earned by your business through sales of its products and services.
Expenses: Money spent on running your company, such as new equipment, software, internet, employee salaries.
Costs: This is the money spent to buy or manufacture the goods and services your company sells, like buying social media advertising or branding for example.
The income statement, or profit and loss statement, breaks everything down so you can compare your sales and expenses. It gives you the ability to make forecasts about your business’ success.
You can make bookkeeping a success by sticking to a regular schedule, tracking every single transaction you make, keeping all accounts organized properly, and storing your records securely. Designating a time at least once a week to look over all your transactions will ensure accounts are recorded correctly and that you stay organized. Tracking every minor purchase is important so that your balances are not thrown off. Your business will inevitably grow and money flow will get more complicated. It’s important to keep everything organized properly now so that you will be ready to take on more clients and transactions in the future. Keeping your records stored properly makes it quick and easy to track down accounts and remain compliant with the law.
Don’t forget that you can always ask for help if you need it! Many businesses choose to hire a bookkeeper and an accountant to make the process easier and smoother. Other business owners just simply don’t enjoy doing accounting type work, so they have someone else do it for them. They’d much rather concentrate on other aspects of their company than running the numbers.