Bookkeeping is one of the top administrative priorities for any type of business. It is implemented by self-employed individuals, shop owners, and small and large businesses. It is a practice used since the dawn of civilization, perhaps before that too. Bookkeeping is basically just a regular exercise to gauge a business’s financial health. It gives an easy and simple representation of financial data; it organizes the cash flow, taxes, revenue, and overall growth of the business. It helps a business to set a future direction for expansion or advancements. What Are Bookkeeping For Traders?
On an individual level, bookkeeping is extremely simple; one can routinely note their expenses in a diary and, by analyzing the data, can identify useless and extra expenses; this way, it will be much easier for them to avoid these expenses in the future.
Shop owners practice a bit more advanced form of bookkeeping than an individual. In this type of bookkeeping, they have to consider a few more factors, like the cost of the stock, applicable discounts, cost of new stock, inventory status, cash inflow, and outflow, taxes related to the business, expenses directly related to the business, etc. All these things are tracked through bookkeeping. It helps in understanding the total spending, where it is spent, and how to minimize it.
Trading can be classified as a small or large business depending on the finances; for a large business of any nature, there is always a dedicated accounts department to oversee its finances. Simple bookkeeping with a single employee can be handled for a small trading business.
How to Bookkeeping For Traders
Bookkeeping can sometimes become tedious, so employing a person or services through dedicated software is best. Regardless of whichever route is used, some of the necessary things to keep in mind are:
- Separate personal and business accounts
- Create easy to follow record
- Set reminders for important deadlines
- Build an audit trail
- Know your business expenses
- Create regular reports
- Track cash payments
- Budget for tax payment
- Know the basics
- Prioritize your books
- Separate business and personal accounts
Always keep your accounts separate from day one. This is an important practice as it helps avoid any extra or unwanted expenses funded through your business revenue.
- Easy to follow record system
Create an easy-to-follow record system for all transactions related to your business. You should not throw away your receipts, invoices, and any related document. Devise an easy system to organize these documents for easy cataloging into your books. You can save these documents digitally by taking pictures and uploaded to your computer or, more securely, save them on cloud storage.
- Set reminders for important deadlines
While running a business, you can easily forget to keep track of important things like tax payment deadlines, payrolls, regular business invoices, etc. these things should be kept track of and dealt with in a timely fashion. There are a lot of digital tools for this purpose, and we have our good old calendar for such tasks.
- Build an audit trail
Audit trails are of great help if your business ends up with a tax audit. Bookkeeping requires a person to have all the relevant documentation saved and organized. Doing so will automatically end up with a good audit record, making it handy for both tax audits and bookkeeping.
- Know your business expenses
While running a business, you need to figure out and differentiate between the expenses for yourself and the business. You will also need to keep an eye on the type of expense as it will help identify the deductible taxes that impact your business’s overall income.
- Create regular reports
Regular reporting is organizing your financial data at regular intervals. It is then added to the books for analysis. Regular reporting will help avoid financial gaps, namely late payments, etc.
- Track cash payments
When cash is injected into a business, it should first go directly to the bank account. This way, it is much easier to keep track of. You should also record the name, date, time, and reason of the source of each cash payment. This is because you can identify the source and purpose of such payments without looking through tons of paperwork.
- Budget for tax payments
When going through a regular bookkeeping session, it’s much easier to calculate your taxes. You will then be able to set aside money for timely tax payments. This practice goes hand in hand with bookkeeping.
- Know the basics
Before doing anything related to bookkeeping, you should always research a bit again and familiarise yourself with the standard financial terminologies. This should be done even if you have hired a professional as well. Otherwise, it will be difficult for you to understand the documents he submits.
- Prioritize your books
It is best to exercise bookkeeping practices regularly, like once a month. You will be able to have a peaceful mind and stay up to date with the financial health of your business. It will also help you to plan the future direction of your business.
Conclusion
Different types of businesses share all the above-discussed things, and trading is also one of them. A trader is a businessman with his time cut short. It is best to hire or employ a professional for the job or use software for bookkeeping.
It does not mean you will ignore all the above; it is still important. Some businesses outsource their bookkeeping as well, but this is not a good practice; this way, all your financial data will be with someone else, and a breach of trust can easily occur.
Bookkeeping is not as hard as it sounds, one will find it hard initially, but one’s things get going, it becomes easier to do. With time, you can customize the whole process according to your business practice and the nature of the trade.
