Bookkeeping For Small Businesses
Our passion for small businesses is huge, and our love for you is undiluted. We continue to believe in what we see year in year out – which is such a high number of small businesses that are growing their revenue base. Yours, too, can get to these heights. Nevertheless, for you to see this success coming to life, you ought to abide by the rules – and the first of them is that you must do bookkeeping for your small business. Failure to do so will prove to be a constant pain on your path to wealth-building.
As such, this article introduces bookkeeping for small businesses. It aims to equip you with essential knowledge on the subject at hand. After reading it, look forward to next week’s installment on the subject, which will see us getting deeper on the subject, including how you can use proper bookkeeping to build your business.
What is bookkeeping?
Bookkeeping is a process where you record, organize and keep all financial records in your company. You need a bookkeeper to perform this function. However, some small business owners do the honors themselves. You can only do this at the initial stages of your business. It is recommended that you hire a professional bookkeeper as soon as possible to avoid making mistakes.
But, even if you manage to hire a bookkeeper, you must always have some knowledge about the process. Every business owner must understand the types of expenses they are incurring, including the accounting methods being used in their business. If you are to employ a certain accounting software, you must also have some basic knowledge about it so that you can cross-check your books after an accountant has worked on them.
Business accounts for every business owner to know.
As a business owner, you must know about these basic types of accounts. These are assets, liabilities, revenue or income, expenses, as well as equity. If you know about all these, you will understand how each entry in your bookkeeping files affects each of them. For example, if you have more liabilities than assets, you have less equity. Why? Because equity equals assets – liabilities. So, a business owner with this knowledge will know that they must stop borrowing as soon as liabilities grow near the value of total assets.
Assets are what your business owns, including cash at hand and in reserves. Liabilities are debts you owe; some are long-term, and some are short-term. Revenue or income is the money that your business receives, through sales. Expenses represent the money that flows out of your business, usually to pay for services, for example, hiring a bookkeeper, or repairing the business car. Finally, equity represents your held interest in the business. This is the value left if we were to sell all your assets, add that to cash you have in the business and subtract liabilities. This is why I said that your liabilities must be much lesser so that if the business must be closed, you, as the owner, will be left holding on to something. Besides, more liabilities affect the business’ ability to borrow in the future.
What are the types of bookkeeping methods you can use?
There are mainly two types of bookkeeping methods that can be used. These are the Cash Method and the Accrual method. The Cash Method of bookkeeping recognizes revenues and expenses at the time they are received or paid, respectively. In contrast, the Accrual method recognizes revenue when the transaction is made, even when no payment is received. Therefore, this requires the help of bookkeeping to be able to track receivables and payables. Receivables are the money that the business looks forward to receiving from credit sales, while payables or account payables are business expenses.
As I conclude this article, I encourage you to watch this space for next week’s article, which will go deeper into how bookkeeping helps you grow your business and file your taxes free of problems. Otherwise, if you have any burning questions on the subject, or want to hire our firm for bookkeeping services, kindly use our contact information to call or email our office. We will gladly assist you.
People have also asked the following questions.
1. What is bookkeeping?
This is a process of recording, organizing, and storing all financial transactions carried out by a business, or individual. It does not matter what size your business is, or if you started it today; you require bookkeeping.
2. Why is small-business bookkeeping important?
Bookkeeping helps small businesses track their expenses and income, which, in turn, helps them to plan, streamline their expenses, and save money. Bookkeeping also helps small businesses with their tax filing.
3. How Can Bookkeeping Basics Support Your Small Business?
Good bookkeeping basics lead to good financial statements for a small business. These statements lead to proper business management since you now understand how money is spent, where you are likely to sell the most, and what goods or services bring in more revenue. More so, if your bookkeeping is good, it helps you win an IRS tax audit.
4. How Much Do Bookkeeping Services for Small Businesses Cost?
The costs for doing bookkeeping vary. If you do it yourself, I can only assume that the costs will be too much since it will take your productive time. But if you decide to hire professionals for it, the costs vary, depending on the level of experience of the bookkeeper you hire. But it is better to hire a bookkeeper than to do it yourself.
5. What Do You Need to Set Up Bookkeeping for Your Business?
Well, to begin with, you need an excel sheet and a bookkeeper to start doing your business bookkeeping. In some cases, small businesses use an accounting software for their bookkeeping. However, I am always in support of having a human oversee the process because a software is programmed in a certain way, which may not be ideal for your business. Finally, you need all your receipts and invoices to bookkeep. Always keep them in a safe place.