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 you should be doing your bookkeeping? Which software you should be using? What tasks you should 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. 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 in order to make strategic
decisions about money. 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 to allow you to forecast for large expenses, such as inventory, supplies, maintenance, staff costs, tax and most importantly paying yourself on a regular basis. A large part of bookkeeping is managing your money welland making intentional business decisions, so that you set your business up for success in the long term.
Simply put, it is keeping track of money that you owe to other people. If you’re buying goods and services from your suppliers with terms (eg. NET 30, NET 60, etc), you’ll have to think about your accounts payable system within your bookkeeping structure. You’ll want to keep track of when your bills are due so you can ensure healthy cash flow in your business.
Accounts receivable is simply what other people owe you. The most common accounts receivable process is your invoicing system, but it can be anything to do with how you get paid for your products and services.
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 make sure you will receive payment.
The time that elapses between these two points varies. If you sell online products, you tell customers what they owe you via the online cart system and you receive payment on the checkout platform immediately.
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 the actual running of 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 between three to five minutes every single 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 more time that elapses between doing your bookkeeping, the longer it’s going to take. It sounds counter intuitive, but doing it more often help you stay on top of it.The higher the number of transactions one has, the more frequently one need 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 all of that 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
How should you be doing your bookkeeping? 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 the keeping of receipts.
Every business is different, and every business has a different 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 that you need to do daily, weekly, monthly, quarterly and annually and this should be planned out. It is common practice to want to skip the foundational work, but it’s really important to plan ahead 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
• Reconcile all accounts
• Run and review a Profit & Loss Statement
• Review business budget
• Calculate tax savings
• Pay yourself
• Make estimated tax payment
• BAS Preparation and Lodgement
• Check in on financial goals
• Review year-end Profit & Loss statement
• Close out your bookkeeping
• Review 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 bottom line being in the red or black and will 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 keep yourself informed of changes. 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