When you run your own business there is a lot to take care of and many hats to wear. One thing that might be overlooked in the rush is your bookkeeping. Having accurate financial record keeping practices can really help hold you accountable to your spending and income as well as allow you to make viable plans for future growth.
What is bookkeeping?
Bookkeeping is the practice of recording your income and tracking your receipts to be able to accurately measure your financial standing at any moment in time. While bookkeeping gets its name from “keeping the books”, modern technology allows businesses to move past paper ledgers with cloud spreadsheets and complex automated software.
Bookkeeping vs Accounting
Bookkeeping is recording all the financial data from day-to-day transactions as they happen. The bookkeeping records are what is later sent to an account for filing your tax or detailing more complex financial analysis and trends.
Types of bookkeeping
Bookkeeping comes in all shapes and complexities, depending on the type of business you run. As your business grows you may need to consider adopting a more professional booking style.
These are the most common:
Single-entry bookkeeping
A simple record-keeping structure where items are divided into expenses and income.
Double-entry bookkeeping
A more accurate system where items are listed as both income and expenses to ensure records are balanced and accurate.
Accrual-based vs cash-based
You can choose to record items from the moment they are invoiced or ordered on an accrual-based system or wait until money has been debited or received with the cash-based system.
To see which is the best fit for you, contact an experienced provider to get advice about your bookkeeping needs.
Financial statements
Once you have been keeping your books you will be able to generate statements which you can use to compare and chart your long-term progress or show to investors to entice them in.
The main statement types you will most likely encounter are:
- Statement of cash flows
- Profit and loss statement
- Income statement
Bank reconciliation
You can also use your bookkeeping records to compare with your bank statements and check for accuracy.
Bookkeeping best practices
Knowing that your records are accurate helps you use the data more widely and rely on it to give your business direction. No matter how automatic your booking system is you will need to do some maintenance work to make sure it is up to date:
Keep to deadlines
Make sure all your staff members are submitting their receipts on time so that items can be listed as they occur. Missing information can drastically change the profit/loss results.
Maintain proper records
You need to choose the best accounting system and stick to it. When your transactions are entered consistently and accurately you will get reports, trends and patterns you can analyse and use to grow your business.
Store receipts
Make sure your receipts are stored in a way they are safe and organised. This makes it easy to refer to them as well as pass them on to an accountant when the time comes. Consider well-labelled digital records stored on a cloud file.
Keep personal and business accounts separate
Small business owners often make the mistake of stirring, recording and lodging their business accounts with their personal ones. This is a confusing practice that can change the findings of your business financial reporting.
Keeping your books up to date gives you more financial control and more accuracy when you hand them over to your accountant. It’s a small effort with a big result.