Bookkeeping can seem like a daunting and nerve-wracking task. Especially if you are running a small business, managing the bookkeeping part of the business can seem extremely difficult. But don’t worry, we have all the required information to prepare you. how to do small business bookkeeping?
So, what exactly is bookkeeping?
Simply put, bookkeeping is all about maintaining the business’s financial records and financial transactions. For larger businesses, whole departments maintain the company’s financial records, but for small businesses bookkeeping has to be done by the owner themselves.
What’s the need for Small businesses bookkeeping?
- To keep an eye on the transactions happening in your business
- Financial information can help in budgeting and making financial decisions
- It can help in understanding how much you owe and how much is owed to you
- Bookkeeping can make predictions about cash crunches and point out ways to avoid it
- It’s a good way to avoid financial mismanagement and even fraud
- It can help you in filling your tax returns
- With your financial information, working with accountants, lenders and investors can be a breeze.
Steps for successful bookkeeping for small businesses
Maintaining bookkeeping for small businesses is a tiresome task and business owners might find it annoying or difficult to handle. Let’s discuss some tips for effective bookkeeping which will help business owners to maintain their bookkeeping tasks.
All transactions should be recorded
In earlier times, transactions were recorded by punching them manually into spreadsheets or writing them in a cashbook. However, it is common for business owners to download this data directly from the point of sale software or the software that does the invoicing.
The important part here is to have a record of every transaction made; every purchase or sale made by the business needs to be recorded. Furthermore, proof of purchase also greatly helps in the taxation process. Once again, all these tasks can be done manually by punching them in the spreadsheet or the cashbook, or they can be automated by using accounting software and linking it to your bank account.
Creating a new business account
While this should be obvious, the need to create a new business account cannot be stressed enough. Mixing your account with your business account is disastrous in many ways. Having a separate business account helps you ensure that all business transactions can be monitored and have a separate ledger from your account. This way monitoring your business account becomes easier.
Keep some money for taxation
It is important to keep a bit of money aside for taxation. This can be done by making sure that there is a preset amount in your account reserved for the purpose. The other option is to have separate savings account for savings and taxation purposes. This way, you can ensure that you will have peace of mind when the time to pay the taxes comes.
Importance of organized records
Record and small business bookkeeping can be a very daunting task. It can be difficult and messy and leave the person troubled and anxious. However, the fundamental mistake people make when it comes to bookkeeping is to have an unorganized system of keeping records. This can make an already daunting task very difficult to manage. Furthermore, keeping the records straight can help in being organized when there is an urgent requirement for a piece of information.
Reconciliation of transactions
Reconciliation involves checking the bank transactions against your bank statement to see if there are any discrepancies between the two. This is a wonderful way of checking whether the balances match or not. In case they don’t match, it is fundamentally important to check the ledger and ensure they do. Often, hidden charges such as bank fees, credit card fees, or other such transactions are not accounted for and need to be adjusted accordingly.
The reconciliation might be done in several ways and at different intervals such as daily, weekly, fortnightly, monthly, quarterly, half-yearly, and at the end of the year. This completely depends on the number of transactions done on the small business. It is important to mention that the sooner the reconciliation is done, the better the chances of catching any errors or problems in the ledger. Furthermore, reconciling your account before submitting the tax return is always a good idea.
Tracking your expenses
The expenses of a business can be hard to maintain and difficult to track. However, the best way to do this is to keep track of your expenses and categorize them according to the types of expenses. This will make it a lot easier to track the expenses. For example, the traveling expenses can be measured as car mileage. A good way to maintain your travel expenses would be to measure the car mileage and the associated expenses.
Keeping daily records
While this should be a given, keeping daily records of your expenses, liabilities, and credits is one of the fundamentals of effective bookkeeping. Maintaining and keeping your record straight on a day-to-day basis is one of the best ways of ensuring that there are no errors in your bookkeeping.
Leaving an audit trail
Leaving an audit trail can be a thing of fundamental relief. This ensures that there are no hiccups if you need to have proof of your expenses or liabilities. Having an audit trail can be important to keep the data and records at hand if needed. The numerous bookkeeping and accounting software can do this automatically, which makes the process less tedious.
Keep your receivables in mind
While having delayed payments is a natural part of running a business. It, however, has a devastating effect on bookkeeping and can drastically affect the cash flow. The best methodology at the end of the day is to close the accounts and receivables as soon as possible. This way, there won’t be any discrepancy in the accounts and the payables.
Tax deadlines
This is another fundamental that people always end up missing. But keeping the tax filing deadline in mind is as important as any other item on the list of small businesses bookkeeping. Furthermore, keeping your documents and financial records organized is also fundamentally important to ensure no problems in filing for taxation.
Conclusion
Every small business needs to adopt bookkeeping activities in order to maintain its business effectively. There are a lot of things that should be kept in mind to run any business smoothly and effectively so to fulfill this purpose small businesses bookkeeping practices can play an important role.
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