Bookkeeping is an absolute must for every successful business, no matter its size. But when talking about bookkeeping for small businesses, many business owners think that they can be their own bookkeeper.
Today, you are going to learn what goes into bookkeeping, how it’s done, and whether you can or cannot do it yourself. Find out about the tools and techniques used by professional small business bookkeepers.
If you have a business, especially a beginning one, the information presented here might come in handy more than you’d think. When you started your business, you weren’t dreaming of fighting with receipts and taxes, which is why we are here to help.
Let’s see what small business bookkeeping is all about!
BOOKKEEPING DEFINITION
Bookkeeping is the process of systematically recording the financial transactions of a business. Recording and organizing are actions that are at the foundation of what the bookkeeping process means. Every penny that goes in and out of the account of your business must be accounted for.
All the payments, receipts, sales and other financial transactions of the company must be recorded in the correct category. This typically means recording in chronological order, everything also being concretely labeled so that it can be easy to find. If you need a receipt from May of 2022, efficient bookkeeping ensures that you’ll find it.
Therefore, data is recorded into a general ledger, either a paper journal or software, and put into these categories.
Traditionally, bookkeeping was done with a pen and a piece of paper. Nowadays, many small business bookkeepers are using bookkeeping software programs.
One of the best bookkeeping methods that you must know is double-entry bookkeeping. It is a bookkeeping principle dating back to 1494, believed to have been invented by the Italian mathematician Luca Pacioli. The basics of double-entry bookkeeping are recording every transaction twice, but this will be discussed further down in the article.
These go beyond just recording. They must also:
All of these tasks serve the bigger purpose of ensuring the financial health of small businesses. Attention to detail and double-checking are essential in bookkeeping. It’s fundamental to understand that bookkeeping is not an accessory, but rather a main piece of your business.
With bookkeeping, you create the best foundation for your business. You can then further build on accuracy and transparency, which will lead to good decisions for your company.
It’s essential that small business owners understand basic bookkeeping terminology. Unless you have some background in accounting, some terms will confuse you. If you want your business to be happy and healthy, you need to know what you’re talking about.
Even if the two terms are often used interchangeably, they do mean something slightly different.
As they say, teamwork makes the dream work, which is valid for bookkeeping and accounting!
Even if the financial activity is just beginning, or it’s moderate, you still need bookkeeping for your small business. Many small business owners try the system of ‘just remembering’ or ‘just taking notes from time to time,’ but this can lead to extreme errors.
Every 0 and every comma is important when running a company, and going by memory alone could end up with you writing down a completely different number at the end of the month.
The sooner you start with a clear system, the easier it will be when your business grows. When your business is just beginning, you cannot afford to lose even one penny. You must have access to accurate data, so that you can make smart decisions.
Money that is not accounted for is easily overspent, which you cannot afford, especially with small businesses. But bookkeeping is not only about making sure that you are not spending too much money, but about tax compliance too.
Even small businesses must file tax returns, and you need to be able to provide proof in case of an audit. Incorrectly filing tax returns can lead to penalties, or even worse situations.
An effective bookkeeping process makes sure that tax season is not going to be stressful for you. That’s why small business bookkeeping is a must!
Bookkeeping for a small business needs to be split into clear, repeatable tasks. But, for that to work, you need to set up a system.
One of the tools that is essential for small business bookkeeping is double-entry bookkeeping. Double-entry bookkeeping is when you record the same transaction twice. The system has two equal and corresponding sides called debits and credits. The idea is that, at the end of the day, the debits and credits are equal. If they are not equal, it means that there was a mistake made somewhere down the road.
A spreadsheet software program is another important tool. If you are just beginning, a bookkeeper would recommend Google Sheets or Microsoft Excel because they are easy to operate. However, remember that spreadsheets require manual logging, which is a technique prone to mistakes.
Tools that many business owners don’t know about are the apps that allow you to snap a shot of a receipt and then automatically process it into the expenses records. These kinds of apps help you save a lot of time.
One basic bookkeeping tool that you need is to connect services like PayPal or Stripe to your bookkeeping software. This allows the payments that come through to be recorded automatically.
And as we are talking about software programs and tools, you must know about QuickBooks.
QuickBooks is the best bookkeeping software for any small business. If you are thinking of doing your own bookkeeping, a software program like this could be of great help.
The whole purpose of this program is to make bookkeeping easier and quicker. You can do everything, from recording transactions to managing invoices to tracking expenses and generating reports. No more jumping from one tab to the other, because all of these actions can be done on just one platform.
It also easily integrates PayPal, Stripe, and other similar apps. The amazing thing about it is that you can access your database from anywhere around the world, as long as you have a connection to the internet.
Let’s take a closer look at the things you can do on this platform:
Believe it or not, this is one of the most common mistakes happening in small businesses. If you are just starting your business, it might seem like a harmless practice. But if audited, you will probably get into some trouble, and end up paying penalties because your business and personal finances are mixed up. One of the worst things that can happen because of this mixing of finances is cash flow confusion. Because of your personal finances, you might not be able to tell when there is a cash flow problem in your business. Maybe you didn’t know, but unresolved cash flow problems led many businesses to bankruptcy.
Accounts receivable, also known as simply AR, refer to the money that other businesses are owing to your business. This is usually considered an asset for the company. It’s important that you track every single invoice that needs to be paid to you. Do not allow invoices to just slip through the cracks and never be paid. Even if it’s a small amount, it still matters. To avoid this, it’s important to always send invoices promptly and follow up as soon as they become overdue.
You might think that business bookkeeping has nothing to do with that coffee you paid for a client, that parking fee that you are paying weekly, or the snacks you buy for the office. But that couldn’t be further from the truth. Every transaction or payment that is related to your business must be recorded and accounted for. These small expenses often qualify as tax deductions because they are related to your business. Why miss this opportunity that is going to positively impact your company?
Bank reconciliation refers to matching the recorded transactions of your company to your bank statements. Not doing this simple task can allow many mistakes to pass by unnoticed. As an example, if an expense has been recorded twice or a vendor double-charged you, this gives you a chance to fix it. Moreover, attempted fraud is more common than you think. But reconciling accounts allows you to spot it early, It might be a tedious task, but it’s worth it.
Anything, from a hard drive failure, to a software glitch or a cyberattack might happen, leading to you losing all of the financial data of your company. If you don’t have any kind of backup, recreating the records will most likely be impossible. If this has already happened, the solutions are limited and not at all satisfying. But, fortunately, you can avoid finding yourself in such a situation. Ideally, you would maintain regular backups, both in the cloud and on secure physical storage. Most cloud-based bookkeeping systems will automatically save the data in more than one place anyway. But, it’s still wise to export copies periodically (at least monthly).
Bookkeeping for business? Well, to put it simply, if you have a business, you need bookkeeping services! Depending on the complexity of your finances and the size of your business, you might need more or less bookkeeping.
When starting your business, you need bookkeeping because you need to set an efficient system to build on. Then, everything must be accurate and up-to-date for tax season. You cannot afford to mess up your first tax season (nor your second one, third one, and so on).
Even if you are just beginning, thinking that bookkeeping is not so important, it is. Banks or investors expect to see clean, standard and accurate financial statements that require bookkeeping.
Moreover, as a business owner, there are many things that you need to take care of. Both technically and practically, you are the boss, and everything is on you. If you don’t want in-house bookkeepers or an entire team of professionals, you can look for bookkeepers for a small business.
The bookkeeping services for small businesses cost is not as high as you might think! And, when your company starts employing, the taxes and the bookkeeping just get more complicated.
Technically, yes, you can do small business bookkeeping by yourself. But how long can you be your own bookkeeper for?
The more businesses grow in size, the more complex the bookkeeping becomes. Plus, the law doesn’t care if you forgot to log a transaction, or if your data has been stolen.
When tax season comes, you need to be ready. As a business owner you have so many things on your plate that it’s easy to forget about the things related to bookkeeping.
But, the good news is that, you can have someone help you set up the bookkeeping system, and try to do the bookkeeping on your own, at least for a while. This article is a great guide when it comes to bookkeeping basics for small business owners.
The ProLedge team is ready and able to answer any questions regarding the services that we offer, besides double entry. You can contact us anytime, and we will make sure to accommodate your business. We are available for both online meetings and calls.
This typically depends on the size of the business, or the number of transactions happening. If transactions are happening daily, it’s best to update your books daily. But, typically, for small businesses, a weekly update is more than enough! A monthly update is not recommended, but if you cannot do a weekly update, a monthly one is still good. Therefore, a weekly update of your books should be perfect.
Cash basis accounting is when the bookkeeper records income after actually receiving the payment. Accrual basis accounting is when you record income when it’s earned, even if unpaid. For a small business, cash basis accounting works better. It’s easier to implement and follow, and more closely tied to the actual cash flow of the business. For early-stage operations, this might be the best option for you. But, as your business is growing, you might want to switch to accrual basis accounting as it provides more accurate performance analysis.
Small businesses should keep all tax-related records, like receipts, invoices and bank statements for at least 3 years. Wage reports and actual tax records should be kept for at least 4 years. But, be careful, because some labor laws require at least 6 years for payroll records. The profit and loss statements should be kept for around 7 years. But most businesses keep them permanently for reference. A good general rule is to keep everything for as long as you can, because you never know when it might come in handy.
To reconcile accounts means to compare your small business’s financial records with external records (bank). To do this, you need to gather your records, both the internal and external ones. And, you might not like the sounds of it, but you need to compare the transactions one by one. Grab a coffee because this might take a while. This is why it’s so important to do this often. The more you wait to do it, the more transactions you’ll need to check.
Yes, bookkeeping for small business has a direct impact on your taxes. How? Well, accurate bookkeeping shows businesses how much they have to pay in taxes. If transactions are missed, you underreport, which leads to penalties. And if a transaction is double-recorded, you overreport, which leads to unnecessary tax payments. Proper bookkeeping ensures that deductible business expenses are recorded, which helps your company pay less in taxes.
If you are in need of business bookkeeping services, ProLedge is just the company for you! We have a team of professional bookkeepers who are ready to assist you 24/7. We offer both online and offline assistance, which ensures that, wherever you are, we can help you.
You will have access to a team to which professionalism and expertise are second nature. We offer a free consultation, to show you that we are actually dedicated to the cause. Hire us and your small business will be in good hands!
We know everything about double-entry bookkeeping and we can help set up and assist you when using QuickBooks.
One of our bookkeeping services is actually training for the bookkeeping software QuickBooks!
You can contact us at any time, by email or phone, and we will be there to answer all of your questions promptly. Bookkeeping for small businesses falls under our expertise.
Allow us to be your bookkeeper!
TESTIMONIALS
Working with ProLedge means professionalism and dedication. Check out what our clients had to say about our bookkeeping services!
We’ve been working with ProLedge for three years now and as a small business owner, their service has made a huge impact on both the accuracy of our bookkeeping and allowing us to focus on the things that we do well. Working with ProLedge was one of the best decisions we’ve made, and highly recommend them!
Using Proledge Bookkeeping Services to handle our bookkeeping has been excellent. My CPA focuses on year end tax planning and strategy and Proledge makes sure our books are clean and transactions are all accounted for. I’ve been a happy client for years now and they have always been easy to work with, transparent, and prompt in responding to any questions. Highly recommend!
I really like this company. They came to my rescue 3 years in a row, with my backed-up bookkeeping needs, in a timely and professional manner. It’s been a pleasure and a breeze working with Rebecca. I’m happy to have retained their services. I highly recommend them.
OUR BLOG
Our blog provides information on the latest bookkeeping news and tips. We always keep this section updated, so check our website regularly!
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The financial fortitude of modern businesses is often tied to the movement of money, in and out of companies, over a specific amount of time. Cash flow, in the contemporary
The financial fortitude of modern businesses is often tied to the movement of money, in and out of companies, over a specific amount of time. Cash flow, in the contemporary
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Melissa K is an absolute GEM to work with. She’s been working with my company since the early stages and has provided a competency that I don’t for granted. Knowing that the company books are tidy, correct, and easy to understand is the ultimate security for a startup in my opinion. Melissa is definitely a part of the team and we’re happy to work with her as we grow!