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Small Business Bookkeeping Quick Guide: Easy Steps To Success

03 Jul 2017






Basic bookkeeping for small business is a necessary obligation for entrepreneurs wanting to be successful in business.

If you don't have a clear financial blueprint, can you measure the success (or failure) of your small business?

To know how much you are earning and how much you are spending will better prepare you for impending financial crisis before it hits your business. Knowledge of your financial performance can help you redirect your business to the path of success.

“An investment in knowledge pays the best interest.” -Benjamin Franklin

The best way if not the only way to be on top of your finances is good bookkeeping.

A small business owner wearing multiple hats is likely to ignore the importance of bookkeeping simply because managing the daily business operations and gaining customers that take the best part of the day get on top of the priority list of to-do things.

Small business bookkeeping sounds a little less important to many starting entrepreneurs overwhelmed with a multifold of tasks necessary to generate revenue. If you think you can ignore bookkeeping for small business, you really should not. When small tasks begin to pile up and you start losing receipts that the taxman requires, it brings real financial pain in the long term to your small business.

If you must, you should outsource bookkeeping services.

Why should you practice good bookkeeping for small business?
  • You should be able to clearly demonstrate your business financial performance to date
  • You should be able to give a good level of financial confidence in the future that shows you are far from going bankrupt
  • It helps you accomplish necessary financial reports submitted to government institutions such as the IRS
  • It helps you monitor and maximize all available resources including labor, material and financial to achieve your business milestones
  • It helps you properly plan for profitable business activities

 

Is there an easy way to do bookkeeping for small business?

Small business bookkeeping does not have to be too difficult.

You can always opt to automate your bookkeeping process and use cloud technology to store your financial information so that you can generate reports in real-time and access your data anywhere. Most professional bookkeepers and many small business owners trust QuickBooks.

But if you feel that you are not ready to invest in technology, you can always start with a 5-step action plan that still keeps you in control of your financial information. Or, find a reliable small business bookkeeping service that you can trust with your financial information.

 

Understanding the common types of bookkeeping accounts

To organize your business finances properly, you must know what are the common types of bookkeeping accounts to gain some clarity of what your business financial looks like such as what are your accounts receivable?

“Not sweating the small stuff like understanding your own books is trouble in the making,” Lita Epstein, author of Bookkeeping Kit for Dummies

According to SCORE Association, the non-profit organization for small business that Cristy Fontanilla, FAS Managing Partner is a proud and active volunteer, there are ten common types of bookkeeping accounts that small business owners should know.

  1. Cash. A cash account is the most basic account because all your business transactions will pass through it. To track your cash activities there are usually two journals that bookkeepers use: Cash Receipts and Cash Disbursements.
  2. Accounts Receivable. The accounts receivable is money your customers owe you and you should be able to track this account. For small business owners who are not collecting immediate payments, you should keep your accounts receivable updated. It’s critical to your cash flow that you bill your customers with timely invoice.
  3. Inventory. Your inventory is an asset and uses cash. You should ensure accurate bookkeeping of your inventory. It’s good bookkeeping practice to track your inventory in your books and periodically validate the numbers with actual counting of your stocks on-hand.
  4. Accounts Payable. The accounts payable gives you a clear view of how much money you owe others like vendors. You should make timely payments to avoid penalties that will incur additional cost and protect your credit score. In many cases, advance or early payment can earn you some discounts that cuts down your cost and adds to your profit. But more importantly, this account will help you track and avoid making payments twice.
  5. Loans Payable. This is the account to track the money you borrowed from financial entities such as the bank. Maybe, you borrowed money to purchase equipment, or any other item you need for your business. It’s important you know what you owe and when it is due for payment.
  6. Sales. Keeping a sales account helps you track your cash inflow from the items you sell. Recording all your daily sales transactions with accuracy is critical to knowing your small business financial performance and identifying strategies you may need to apply to achieve your targets and keep your business running.
  7. Purchases. This account tells you the list of things you have purchased for your business such as raw materials or any finished goods. It’s another critical element to monitor your profitability because this is the section you need to calculate the Cost of Goods Sold (COGS). When you subtract your total COGS from your sales, you determine your gross profit.
  8. Payroll Expenses. If you have employees, even if you only have one, you must keep this account updated for tax requirements and other government related obligations. For many small businesses, payroll makes up the biggest share in the cost.
  9. Owner's Equity. This account tracks the amount of money that the owner puts into the business. Usually, for small businesses, it is logged in the capital accounts. If a business is owned by more than one person, it is only fair that you record all owner’s equity accounts and record any amount taken out in the Drawing account.
  10. Retained Earnings. If you reinvest certain amount of your profit into your business, the retained earnings account is the right place to track it. The calculation for retained earnings is cumulative, which sums all your retained profits since the beginning of your operations. This is an important account to investors and lenders that allows them to measure the performance of the business over time.

 

What transactions should be recorded and how

Professional bookkeepers will tell you that the rule of thumb for small business bookkeeping is to record all transactions with monetary reference related to your business. You should also record anything and everything that explains your sales transactions.
  • Keep daily record of all payments coming in and going out that gives you a complete picture of how your business funds move
  • Accurately record all necessary information for money coming in and out of your business such as names of persons who owe you including all other relevant personal information with corresponding amount of money owed to you.
  • Keep a record of all your liabilities including taxes, operating and overhead expenses, as well as employee paychecks.
  • Record all your sales transactions including the quantity of items sold and the date when it was sold.

 

Managing multi-purpose small business documents

The moment you get your business license and opened a bank account for business, you will begin to receive different documents. And you can expect the documents to pile up soon as you grow your small business.

Qualified Bookkeepers Katy Texas

If you don't have proper document management in place, you could easily lose important documents critical to compliance with state and federal laws. We have seen small business owners hold documents in the cars glove box or under the seat, in the kitchen and in many other random places around the house.

Starting a good bookkeeping practice means a well-organized process of managing your documents and it means highly efficient record-keeping system with reduced errors:
  • Keep your books updated
  • Keep a specific location for all your documents
  • File in folders for easy access

 

 

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