A Guide to Bookkeeping for Small Business

What does bookkeeping actually mean? You know it has something to do with money and your business, but beyond that, you are not sure about WHAT bookkeeping is and HOW to do it.

Most small business owners ignore their bookkeeping because they don't know where to start or what to do.

What is small business bookkeeping? How often should you be doing your bookkeeping? Which software should you be using? What tasks should you be doing?

What is bookkeeping?

Bookkeeping, in simple terms, is the record-keeping process of your business finances. You're probably thinking of it as the tracking of your income and expenses for tax purposes. Well, not exactly. You should think of bookkeeping as three areas:

record-keeping, accounts payable, and accounts receivable.

Keeping accurate records of your spending and expenses from the start, including proof of purchase, will increase your chances of claiming deductions when it's time to submit your tax return. A basic understanding of your tax requirements is crucial when starting a small business, so you can ensure you're following all the rules.

We also use our business finances to make strategic financial decisions. It can be hard to foresee every expense coming your way, but if you can plan and prepare for major costs, you'll be in a much better place long term. Have a plan that allows you to regularly forecast major expenses, such as inventory, supplies, maintenance, staff costs, taxes, and, most importantly, your own pay. A large part of bookkeeping is managing your money well and making intentional business decisions to set your business up for long-term success. 

Accounts Payable

Simply put, it is keeping track of money that you owe to other people. If you're buying goods and services from your suppliers on terms (e.g., NET 30, NET 60), you'll need to consider your accounts payable system within your bookkeeping structure. You'll want to keep track of your bills' due dates to ensure healthy cash flow for your business. 

Accounts Receivable

There are two main points in the process: the billing part, which tells your customers how much they owe you, and, secondly, where you receive payments or follow up to ensure you receive payment.

The time that elapses between these two points varies. If you sell online products, you tell customers what they owe you through the online cart system, and you receive payment immediately on the checkout platform.

With an invoice-based business, you have tasks associated with generating an invoice, sending it to the customer, and then receiving payment. The time between the two points can be much longer, depending on your invoice terms. 

How often should I do my bookkeeping?

As a business owner, you have so much to do, and it can be tempting to avoid your books and focus on running your business. Make time from the very beginning to keep control of your paperwork, and you'll be thankful in the long run, particularly at tax time. If you're struggling to make time for your books, it may be worthwhile hiring the services of a bookkeeper to help you.

If you're working on your bookkeeping every day, it's more likely to become a habit and should take you about 3-5 minutes each day. Set yourself a morning routine. It's a small, simple task and having it broken down works really well. You can't expect to do your bookkeeping once every six months and wonder why it's so hard.

The general rule of thumb is that the longer the time between bookkeeping entries, the longer it's going to take. It sounds counterintuitive, but doing it more often helps you stay on top of it. The more transactions one has, the more frequently one needs to do one's bookkeeping. If you have 10 transactions per month, you can probably do your bookkeeping once a month. It will not be too much to keep up with. If you have 200 transactions a month, waiting until the end of the month to process them all will be difficult. You'll want to break your bookkeeping down into more manageable chunks, so it's less overwhelming. 

Invest in cloud accounting software.

Make it easier to get a handle on your books by investing in cloud accounting software. You can choose from MYOB, Xero, or QBO (QuickBooks Online). All are available as apps and will help you keep an eye on your finances at any time. You'll also appreciate the receipt capture functionality, so you can do away with keeping receipts.

Bookkeeping Tasks

Every business is different, and each has a distinct set of tasks. Your bookkeeping tasks will vary based on your business and your financial needs.

Start with a task list by thinking about the things you need to do daily, weekly, monthly, quarterly, and annually, and plan them out. It is common practice to want to skip the foundational work, but it's important to plan with a task list.

Here are a few examples which may help:

• Daily Tasks:

• Clear receipts from your wallet

• File digital receipts

• Open financial mail and take action

• Log business mileage

• Weekly Tasks:

• Log and categorise payments

• Log and categorise business expenses

• Update invoice tracking sheet

• Send invoice reminders

• Monthly:

• Reconcile all accounts

• Run and review a Profit & Loss Statement

• Review business budget

• Calculate tax savings

• Pay yourself

• Quarterly:

• Make estimated tax payment

• BAS Preparation and Lodgement

• Check in on financial goals

• Review year-end Profit & Loss statement

• Annual:

• Close out your bookkeeping

• Review the year-end Profit and Loss statement

• Tax preparation

Remember, these are just some of the bookkeeping tasks that could be on your list.

The Bottom Line Keeping excellent records can make the difference between your business's bottom line being in the red or the black and help you make better financial decisions, allowing you to grow a successful business.

Bookkeeping requirements change from time to time, and it is important to stay informed about them. Remember, if it does get all too hard for you to do your own bookkeeping, we're here to help.

Feel free to contact our team to discuss your unique business needs and bookkeeping requirements

@ La Trobe Bookkeeping or call 0407 005 662