Bookkeeping is a critical task a small business owner should not overlook. Bookkeeping may seem to be a difficult chore if you are starting your own small business, but still, it must be attended to. Sometimes, it may get overwhelming, especially because a small-scale entrepreneur often has to play so many roles. Moreover, since bookkeeping needs attention to detail and a great sense of organisation, many entrepreneurs find it challenging to keep theirs up to date, given the amount of work they might have to spend just to keep their business going.
10 Simple Tips to Manage Bookkeeping on Your Own
To help you manage bookkeeping on your own, these are some simple tips that you can follow.
Understand the Difference between Bookkeeping and Accounting
If you are a start-up entrepreneur, it is essential to understand the difference between bookkeeping and accounting. Although bookkeeping and accounting both cover a business’s financial aspects, each has distinct roles and functions.
In simple terms, bookkeeping involves your business’s day-to-day transactions and administration. The scope of bookkeeping includes:
- Recording of payments and expenses.
- Managing the payroll process.
- Sending invoices and noting payments received.
- Generating financial statements and bank reconciliations.
- Preparing books for the accountant.
- Providing year-end accounts and tax documents to the accountant.
On the other hand, accounting is more about providing financial insights into a business based on bookkeeping records. Its primary function revolves around:
- Preparing adjusted entries.
- Reviewing and analysing financial statements.
- Analysing the cost of operations.
- Advising the owner concerning the financial health of the business.
- Performing audits.
- Filing necessary business taxes.
Start Your Bookkeeping From Day 1
From the very first day that you make a transaction concerning your business, your bookkeeping should already start. You don’t want to find yourself looking under your car seats for a receipt that should have been on your records. Therefore, starting from day one will be very beneficial and less stressful for you. The last thing you want to do is to look into a pile of unrecorded receipts and invoices.
Separate Your Business and Personal Expenses
Sometimes, separating your business and personal expenses is hard to achieve, especially if you are just starting your business. More often than not, investments used to keep the business rolling come from your savings. That is why you sometimes can’t help getting a little from your own pocket to keep your business afloat. As hard as it may be to some, it would be best if you practised keeping your business and personal expenses separate from the very beginning.
Open a different bank account and obtain a credit card for only your business. This way, you can track all your transactions easily. Plus, maintaining good credit may benefit your business in the long run.
Organise Your Records
Even if you are one of those, who are very detail-oriented and organised, managing your records can sometimes be a bit overwhelming. To help you ease the difficulty, create a filing system that best suits you and your business. Keep a file for all your receipts, invoices, and payables. The key to a smooth bookkeeping process is knowing where to look for all the documents you need.
Be Mindful of Your Invoices and Receipts
It is good to know the difference between invoices and receipts. An invoice is the one you give to your client or customer once you deliver your goods or services, and it is a reminder for your client of the payment that you should be receiving from them. On the other hand, receipts are given once you have received the revenue from your client. Being mindful of your invoices and receipts will help you know the cash flow of your business. Sometimes, if you get multiple monthly transactions, well-recorded invoices and receipts will get you a long way in catching up with your business’s cash flow.
Automate Your Bookkeeping
Many great applications and software are now available, so letting go of old-school bookkeeping should not be a problem. However, automating your will surely save lots of time and even money when it comes to your business. For example, you can automate the bills you are paying and even the management of your payroll. This way, you can easily track all your transactions and cash flow.
Set Aside Money For Your Taxes
Above all things, it is essential to have money set aside for your taxes. The last thing that you want to do is to apply for a loan so that you can pay your taxes. Besides, as a business owner, you should know that getting behind your tax payments will surely bite you in the long run. Therefore, to save you from this, it is wise to have money set aside just for your taxes.
Set Aside Money For Your Recurring Expenses
Aside from your taxes, it would be best if you also kept in mind the need to set aside money for your recurring expenses. Some examples are your rent, utilities, payroll, and inventory. Besides your rent, which is a fixed monthly expense, doing so will also enable you to get a grip on the other variable expenses when your business starts rolling. Moreover, setting aside money for these expenses will help you plan your budget and prepare for future business endeavours.
Avoid Cash Transactions
As much as possible, it is better to avoid cash transactions. Remember about keeping your business and personal expenses separate? When you pay in cash, you often reach out for the wallet that contains your money. As mentioned, this is where having your business credit card comes in handy. Even minor expenses will automatically be recorded if you choose not to pay in cash. Again, this simple act will save you lots of time and help you avoid the possible stress of looking for the receipt for some small purchase.
Consult or Hire a Professional to Do Your Taxes
Going back, there is a difference between bookkeeping and accounting. When it’s time to pay for your taxes, it is wise to consult a professional, or even better, to hire one. Of course, a significant part of having a smooth process in paying for your taxes comes down to having excellent bookkeeping practices. However, having extra pairs of eyes to look through your records when doing your taxes is always recommended. In doing so, your accountant can advise you on your business’s financial health and may even see some ways to save up on your taxes.
Starting a business is a process of going through ups and downs. That is why entrepreneurs need to be on their toes in all aspects of running their business. One way of ensuring a smooth business flow is to adopt a sound bookkeeping system.
Well-organised and systematic bookkeeping will give you an overview of where your company is standing financially. It will help you allocate your budget and guide you on the plans you have in mind for your business. Always remember that bookkeeping is as crucial as all other aspects in growing and making a business successful. So manage bookkeeping wisely, and don’t hesitate to outsource the task if you feel you are not able to give it the attention it requires.