Bookkeeping basics: A guide for small businesses

bookkeeping tips

By prioritizing backups, you guarantee the peace of mind that your financial records are always recoverable, allowing you to focus on your financial goals with confidence. Safeguarding your financial data is paramount, and regular backups are the cornerstone of financial security. Use secure cloud storage to ensure your information is accessible from anywhere in case of local hardware failure. Consider scheduling a weekly or monthly task, depending on the volume of your records. Regularly updating ensures your information is accurate and up-to-date, saving you time and frustration in the long run.

Choose an accounting method

First, find a bank that offers the best fit for your business needs—even if you already have a relationship with a bank, it doesn’t hurt to consider other options. Your priorities may vary, but consider looking for an account that offers no or minimal bank fees. The income statement is a holistic report that shows revenue and expenses over a set period of time. It can be produced for one period to gain insight into the month’s profitability, or produced for the year to period.

If you’re a small business owner, it’s necessary to set projections and forecast the future of your business. Bookkeeping accounting lets you know if your small business needs extra employees or requires operational changes. When you’ve finished your checklist, you should be up to date with your current records. A simple bit of work every week will ensure you have clean books all year.

Keep track of cash payments

For a small business, this can be a great way to get the benefits of having a dedicated bookkeeper and accountant without the need to build out your own accounting and bookkeeping department. Despite the importance of accurate bookkeeping practices, most people don’t feel entirely confident with maintaining detailed business finances. Whether it’s a lack of interest or knowledge, many businesses outsource this process to a professional bookkeeper to ensure accurate and healthy finances all around. Some accounting software products automate bookkeeping tasks, like nonaccrual experience method nae transaction categorization, but it’s still important to understand what’s happening behind the scenes. It all begins with getting your accounting software set up correctly. Income statements feature the business expenses and revenue by different categorized profit centers.

  1. Your business requires your full attention, and sometimes your best choice is the easiest one—outsource the tasks you don’t have time for so you can focus on the work that really matters to you.
  2. By recording cash transactions when the money actually changes hands, you can simply cross-reference your bank statements with your bookkeeping records to ensure accuracy.
  3. In fact, if you’ve registered as an LLC or corporation, you’re required to have a separate small business bank account for business finances.
  4. The Net Present Value (NPV) of your business is a calculation that helps you analyze potential projects or investments that might be worth your while.
  5. Transactions can come from various sources (cash, credit cards, bank transfers), and even small errors in data entry or categorization can snowball into major discrepancies down the line.

Use an online bookkeeping service

You’re also responsible for communicating with your employees and allowing them to know the financial state of your firm. They need to know if the company is making some progress and how they contribute to its growth. Bookkeeping accounting ensures that you have the right information to talk to your team and make them feel like they’re part of the company. With the first, you’ll create a receipt for every cash payment you receive.

bookkeeping tips

Separating your accounts doesn’t mean that your business doesn’t pay you, of course. You can withdraw a regular salary from the business or, if you’re a sole proprietor, pay yourself using the draw method. These withdrawals, also known as an owner’s draw, are easy to track and document in your bookkeeping. Whether you pay yourself officially by draw or salary, those transfers should be recorded in your business account statements. Most accounting software offers a range of features that are suited for almost any type of small business. Professional bookkeepers and accounting professionals are available to manage, track, and report on financial activities.

This means recording transactions and saving bills, invoices and receipts so you have all the data you need to run reports. Accounting software makes it easy to store these documents and reference them in case of an accounting error or audit. There are many easy programs to use for small business bookkeeping. FreshBooks is one of the most highly rated and straightforward programs for accurate accounting records, professional bookkeeper services, and more. Keeping track of bookkeeping tasks as a small business owner can be challenging. You have to know the ins and outs of your business expenses and all your personal and business finances.

A separate bank account is the first step in distinguishing between business and personal finances. Bookkeeping becomes more difficult when business transactions are lumped together with personal activity. Keep all cash, credit card, and other financial activities separate. At the end of the day, business owners want to build their businesses, not manage their books. If you find you’re spending too much time trying to work through your finances, it might be time to consider investing in bookkeeping services.

Many business owners aren’t aware of how much it costs to operate their business. It’s important to know how much every individual part requires to function properly. Understanding helps identify shortfalls, discrepancies, and other issues that are important to catch early. The important decision to make is which type of bookkeeper your business needs.