Learn why bookkeeping and accounting are important and how to do bookkeeping for small businesses so you can maintain profitability and compliance.
Bookkeeping might not be the most exciting part of running a small business, but it is definitely one of the most important. A survey by AccountancyAge in 2017 discovered that most self-employed contractors don’t use any professional bookkeeping help.
That’s a lot of businesses who are risking running into trouble down the road due to poor financial management. If you’re one of those business owners, it’s time to start thinking about implementing a bookkeeping system.
In this blog post, we’ll discuss some of the options available to small business owners when it comes to bookkeeping, as well as why bookkeeping is so important for small businesses.
Let’s take a look at some of the basics of bookkeeping and what you need to do to keep your books in order. We’ll also discuss some tips for making bookkeeping easier for small businesses and entrepreneurs.
Why bookkeeping is important to any business
Bookkeeping is the process of recording financial transactions, and bookkeeping records are maintained in order to track the flow of money in and out of a business.
This information is important in order to make sound financial decisions, such as setting budgets, issuing invoices, and making investments. Without accurate bookkeeping, a business may make poor decisions that can lead to financial difficulties.
How can bookkeeping help your business? There are many reasons why bookkeeping is important to any business. Here are just a few:
- Have a clear and accurate record of all financial transactions
Bookkeeping provides a clear and accurate record of all financial transactions of the company. Accurate accounting lets you and your accountant know exactly how much money is coming in and going out, helping to keep your business finances healthy.
- Spot areas where your business might be losing money
Good bookkeeping practices can help you spot areas where your business might be losing money. For example, if you notice that you’re spending a lot on office supplies but not selling many products, you’ll know it’s time to reevaluate your inventory costs.
- Ensure that you get paid on time
Bookkeeping can also help you keep track of customer payments and prepare invoices more efficiently. This ensures that you get paid on time.
- Make well-informed decisions
Overall, bookkeeping enables businesses to make well-informed decisions, manage cash flow efficiently, and keep track of spending and performance.
Without up-to-date financial records, it would be difficult for companies to make informed decisions about where to allocate their resources or how to best grow their businesses.
- Helps businesses be tax compliant
Another reason why bookkeeping is important is that maintaining accurate records can help businesses during tax season and if they ever face an audit.
Accurate records are essential for tax purposes, as businesses must report their income and expenses to the government. Good record-keeping can also help businesses avoid penalties for violating laws or regulations.
For all these reasons, why bookkeeping is essential and a critical function for any business, and they are why businesses should invest in cultivating strong bookkeeping practices in order to keep their finances healthy and running smoothly.
Who needs bookkeeping services?
Businesses of all sizes that need help organizing and managing their financial records can benefit from outsourced bookkeeping services.
A bookkeeper or chartered accounting service can help businesses keep track of income and expenses, create invoices and statements, and monitor payments.
From small businesses that are just starting out and need help getting their finances in order, to larger businesses that need a second set of eyes to check over their books, bookkeeping services can save you time and money.
At the very least, you should have someone in-house who is responsible for recording all financial transactions and reconciling your bank statements each month.
However, if you are just starting out or that have a limited budget and don’t have the time or resources to do this yourself, it’s worth considering outsourcing your bookkeeping to a bookkeeping and accounting service.
Not only will bookkeeping services for small businesses take care of all the day-to-day bookkeeping tasks for you, but they can also offer valuable insight and advice.
Are bookkeeping and accounting the same?
No, bookkeeping and accounting are not the same. So how bookkeeping is different from accounting? Bookkeeping is simply the process of recording financial transactions, while accounting is the process of analyzing, interpreting, and reporting those transactions.
While bookkeeping is a part of accounting, it’s really just the first step in the accounting process. In short, bookkeeping is the science of recording history and is focused on the past, while accounting is focused on using that information to plan for the future.
Once all the transaction data has been compiled by the bookkeeper, it then falls to the accountant to make sense of it all and prepare financial statements that can be used by businesses to make informed decisions about their future.
Both bookkeeping and accounting are essential for any business but they serve very different purposes and where bookkeeping ends accountancy begins.
What is the best way to do bookkeeping?
There is no “best” way to do bookkeeping, as there are many different methods and strategies that can be used, depending on the specific needs of your business.
However, there are some general tips and best practices that can help you stay organized and efficient in your bookkeeping.
- Don’t play catch up
One important thing to keep in mind is to avoid letting your books get too far behind. When you’re constantly playing catch-up with your record-keeping, it becomes much more difficult to maintain accuracy and organization.
If possible, set aside time each week or month to spend an hour or two entering transactions into your accounting software or keeping your paper records up to date. This will save you a lot of time and headaches in the future.
- Separate business and personal transactions
Another important thing you can do for your business is to keep your personal and business finances separate. Use separate business bank accounts and credit, such as a Novel Business Checking account, for your business needs.
This will not only make it easier to track your expenses and income, but it will also help you maintain clear records come tax time.
This Business Checking account requires no minimum balance or minimum transaction requirements and charges zero fees on domestic ACH, wire, and international wires for Novel Plus plan members.
You can keep all your business financial apps in one place: banking, payouts, invoicing, cards & more, and protect your business funds in a U.S. business bank account backed by $250,000 in FDIC insurance.
To apply for a Novel Business Checking account, you’ll need a U.S. company with a federal EIN, your company’s official formation documents, and a picture of your government ID (e.g. a passport or US driver’s license).
- Use a bookkeeping software program
The best way to do bookkeeping is to use a bookkeeping software program that can help you keep track of your finances. There are many different software programs out there that can help you with bookkeeping, so it is important to find one that fits your needs.
Bookkeeping software will help you keep track of your expenses and income, and it will make tax season much easier. You may want to consider a program that can help you with budgeting and tracking your expenses, as well as keeping track of your income and bills.
Use these e-business tools, startup tools, banking tools, accounting tools, and small business finance tools to manage your business finances, taxes, and more.
- Set up a payroll management system
If you’re not planning to hire a bookkeeping agency, you’ll need to learn how to do all the record-keeping, as well as set up human resource processes like a payroll management system to issue payroll checks and vendor payments.
In the U.S., you can buy business checks with logos that are linked to a company’s checking account. A business check is written against a business checking account and is based on a company’s assets rather than an individual person’s assets.
You can order business checks online from check printing companies to manage payroll and vendor payments.
Which bookkeeping software is best?
There is a lot of debate over which bookkeeping software is best. Every business has different needs, and what might be perfect for one business might not be suitable for another.
So what bookkeeping software should I use? Here are a few things you should keep in mind when choosing bookkeeping software for your business:
- Define your needs
What exactly do you need this software to do? Do you need something simple that will just track expenses and income, or do you need something more sophisticated that can handle inventory, invoicing, and payroll?
When asking the question, “What bookkeeping software should I use?” knowing exactly what you need the software to do will help narrow down your options.
QuickBooks is fairly intuitive and user-friendly, making it a good choice for small businesses. However, it can be expensive, so make sure you compare prices before deciding it is right for you.
For larger businesses, accounting software like SAP or Oracle may be more appropriate. It really depends on your specific needs and preferences.
For example, for freelance bookkeepers, bookkeeping with Xero or FreeAgent could be worth considering. Ultimately, it is important to choose software that will meet the specific needs of your business.
- Consider ease of use
If you are looking for bookkeeping software for a small business, then bookkeeping with QuickBooks might be a good option.
Wave Accounting is another popular and user-friendly bookkeeping software program that’s suitable for small businesses.
- Take a bookkeeping course online
These financial accounting and bookkeeping courses will help you save hours upon hours trying to figure out how to do bookkeeping without software or trying to do your bookkeeping with Excel or Google sheets.
This Wave Accounting course will help you learn how to use this free-to-use bookkeeping software program and save you a lot of money.
If you plan to manage your bookkeeping yourself, these Bookkeeping With Quickbooks Courses will help you stay on track.
© 2022, Priya Florence Shah. All rights reserved.
Priya Florence Shah is a bestselling author, an award-winning online publisher, and an online branding consultant. Download her free personal branding eBooks and check out Devi2Diva, her book on emotional self-care for women. In her spare time, Priya writes science-fiction novels and poetry and chills with her two-legged and four-legged kids.