Bookkeeping might not be the most fun thing about running a business — but it is one of the most important. If you want to run a healthy, financially sound company that survives and thrives, you must learn how to do bookkeeping for a small business.
Bookkeeping is the system that allows business owners to measure their success, monitor their bank accounts, avoid cash flow problems, and look to the future to see what they need to do to be more profitable and successful.
If you’re running a company of one or one hundred, you must learn how to do bookkeeping for a small business. Here are the essential tasks every business owner needs to do to keep their books (and business) in order.
How to Do Bookkeeping for Small Business
To run a business successfully, you must execute the following bookkeeping tasks. These action items are the essential bookkeeping steps every business owner needs to take.
1. Set up an accounting system or software.
Good bookkeeping starts with good reporting. Set up a system or software to manage all of your accounting details. For a very small business, you may simply need an Excel spreadsheet. However, most businesses will benefit from setting up a bookkeeping or accounting software such as QuickBooks that can create invoices, track expenses, receive payments, and generate reports.
2. Track income.
Each time your business receives income, document it in your accounting system. Track all sales revenue as well as miscellaneous income such as interest and rental payments. At the end of the year, you must generate an income report to determine your tax liability. The better your income report, the easier your taxes will be to complete.
Related: 6 Steps to Increase Profit in Your Business
3. Track expenses.
On the other side of income, also track all of the expenses your business incurs. Tracking expenses is also important for tax reasons. Your business expenses can help bring down your tax liability, decreasing the amount of taxes you owe. Track each expense your business has, and also classify expenses to make it easier to determine deductions at the end of the year.
Related: These 6 Small Business Tax Deductions Are Overlooked Too Often
4. Save receipts.
Your business must have proof of expenses. As you make purchases or incur expenses for your business, keep all documentation. Save your receipts. Create a digital folder for digital receipts and also keep paper receipts in a folder (or scan them to save on your computer).
5. Separate personal and business expenses.
One of the most common bookkeeping mistakes for small businesses is mixing up personal and business expenses. Because business expenses are deductible and personal expenses aren’t, it’s important to keep the two separate for tax purposes.
6. Reconcile bank statements.
It’s easy to overlook an expense or fail to notice income deposited into your account. For this reason, you should reconcile your credit card and banking statements to ensure that all items are entered into your accounting system. Reconciling your account helps to identify discrepancies and errors as well as notice any fraudulent activities.
7. Monitor and manage accounts receivable.
Accounts receivable are the payments due when a business sells its products or services on credit terms (such as invoicing customers and allowing them to pay at a later date). The amount owed by customers becomes an account receivable, and it is essential to monitor these outstanding payments and collect them in a timely manner.
8. Monitor and manage accounts payable.
On the flip side of collecting payment, bookkeeping tasks also include making payments on behalf of the business. Accounts payable are the payments a business owes to its vendors, suppliers, and creditors. It represents the short-term liabilities or obligations a company has to pay for goods purchased or services rendered on credit terms. A regular bookkeeping task is making sure these accounts are paid in a timely manner.
9. Pay taxes throughout the year.
Businesses have a variety of tax liabilities that are best paid throughout the year rather than all at once at the end of the year. Businesses are required to pay estimated taxes or make regular tax payments based on their income and other taxable activities to avoid penalties and legal issues. Consistent bookkeeping can ensure that the payments are made and that they are made in the correct amounts.
Related: The 10 Tax Mistakes You Don’t Want Your Small Business to Make
10. Secure and backup your financial data.
Having accurate historical financial data for your business is essential. Not only does it help you create reports you need to file your taxes, but it also helps you gain insights about your business. You can look back and compare your records to see trends and shifts in your business. Ensure that you never lose your financial records by securing and backing up your financial data regularly.
11. Pass bookkeeping tasks over to a professional.
If you went through this list and realized that you don’t want to learn how to do bookkeeping for a small business, that’s fine. It’s likely that you are a business owner, not an accountant. If that’s the case, it might be time for you to hand over these tasks to a professional. When you hire a professional, you take these tasks off your plate and get time back to run your business. Plus, you get the expertise that comes with professional bookkeeping.
A professional bookkeeping partner can help you:
- Review financial reports
- Create a budget.
- Build a financial forecast.
- Monitor cash flow.
- Engage in year-round tax planning.
- Easily prepare tax returns.
Professional bookkeeping puts expert eyes on one of the most important parts of your business — your finances. It gets the tasks done with fewer errors, in less time, and with more insights to inform your business decisions.
Related: Outsourced Bookkeeping Benefits: 7 Ways to Save Time & Money
Get All of Your Essential Bookkeeping Tasks Done For You
If you run a business, there are essential tasks you must do to keep your books in order and keep your company running. If you can’t keep up with these tasks, pass the workload to someone who can.
Talk to CFO2U about how our monthly outsourced bookkeeping services can take over your back-office accounting for you. Download our free guide to learn more, or schedule your free consultation to get started today.
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