A clean financial record indicates that you’re on top of your finances. It provides helpful information when you’re preparing your budget and taxes, creating decisions, managing cash flow, and measuring the profitability and growth of your business. Indeed, bookkeeping isn’t a task you should ignore. Learn how to keep books for a small business to achieve accurate and organized financial information.
Bookkeeping Basics for UK Small Businesses
Bookkeeping is an accounting function concerned with the recording, classifying, and reporting of your business’ financial transactions. It tracks your business expenses, income, as well as the current amount of money you have in your account.
Allocating enough time to manage your books allows you to spot financial issues early and, at the same time, helps you identify areas for profit expansion.
The basic records you’ll need to perform your bookkeeping duties are the following:
- Cashbook - this is where you record all your bank and cash transactions.
- Sales invoice - the document containing your sales transactions.
- Purchase invoice - the document containing the details of the service or product you bought.
These three records are only the bare minimum records when keeping your books. You may need more, especially when your business continues to grow.
Getting Started: How to Keep Books for a Small Business
Setting up a business includes a variety of tasks. It isn’t just about offering and selling your products or services. There’s a lot more going on at the back-end, and bookkeeping is one of them.
Whether you love numbers or not, you have to face your bookkeeping responsibilities to keep track of your financial condition.
In the list below, we rounded up some steps and tips to guide you on how to keep books for your small business.
- Identify your business accounts
- Create a bookkeeping schedule
- Set up your books
- Record your transactions
- Reconcile your transactions
- Use cloud-based bookkeeping software
- Get professional help
Now, let’s discuss each step one-by-one to give you a better understanding of what you should do to keep books for your small business.
Identify your business accounts
To properly organize your books, it is necessary to understand the different types of accounts you’ll be dealing with. This way, you can tag your transactions using the right categories.
- Revenues - the money you earned through sales and other income-generating activities.
- Expenses - the amount you use to pay for items and services you need to operate the business.
- Assets - the cash and resources your business owns.
- Liabilities - monetary obligations you owe to another entity such as loans and taxes.
- Equity - the net amount of funds you have after deducting your liabilities from your assets.
READ NEXT: How to Create a Simple, Functional Chart of Accounts
Create a bookkeeping schedule
Creating a bookkeeping schedule is essential to set your priorities straight. We recommend you set aside some time to organize your books on a daily, weekly, monthly, quarterly, and yearly basis. This will not only keep you updated on your financial status but will also prevent your paperwork from piling up.
Set up your books
You can set up your books by choosing one of these methods:
- Traditional bookkeeping - uses spreadsheet software such as Excel or Google Spreadsheets where you will manually input your financial details. While this is the cheapest option, choosing this method may compromise the accuracy of your records. Organizing your books will also take longer.
- Bookkeeping using on-premise software - requires a high up-front fee before you can install and use it. It offers automated and advanced bookkeeping features. However, it can get outdated with time.
- Cloud-based bookkeeping - involves the use of an online application like Xero and QuickBooks to maintain your books. You’ll need to pay a monthly fee for its subscription. It is more flexible compared to on-premise bookkeeping software.
Record your transactions
Even little details matter when maintaining your books. Make sure you record every transaction from your sales data to official business purchases. Aside from keeping an eye on your finances, recording your transactions also doubles as proof when you claim your tax-deductible expenses.
At this point, you should also remember to separate your business expenses from your personal expenses to avoid confusion.
Reconcile your transactions
To guarantee the accuracy of your books, always reconcile your accounts.
Reconciliation is the process of comparing two sets of records. An example is comparing the numbers in your books against your bank statements. By doing this, you can see if there are errors in your numbers, figure out why they occurred, and correct them as soon as possible.
You can reconcile your accounts daily, weekly, or monthly, depending on the number of transactions you have. But it is better if you can do it more often to lessen your workload in the future.
Use cloud-based bookkeeping software
Your life will be a whole lot better if you use cloud-based software. Not only will you speed up your bookkeeping tasks but you can also minimize human data entry errors. It also offers tons of useful bookkeeping features that can automate time-consuming tasks like bank reconciliation, payment of bills, and invoice reminders.
RELATED: Top 10 Small Business Cloud Accounting Software of 2020
Get professional help
Given all the information we’ve discussed, do you think you can handle the management of your finances?
If you can hardly find sufficient time to tend to your books, or if you still find it confusing, it is best to get some help from a reliable bookkeeper or accountant. Paying a professional fee is nothing compared to possible financial consequences you may face due to disorganized books.
Still hesitating to outsource a bookkeeper because of the cost? If your answer is yes, then would you rather dedicate your time to bookkeeping than focus on developing and expanding your business?
A certified bookkeeper can organize your books within a shorter period. Since it’s his or her field of expertise, he or she also has extensive knowledge of the necessary documents and processes to manage your finances appropriately.
The best way to keep books for a small business still depends on the nature of your business. Hopefully, this guide has given you enough information to manage your books well.
If you’re interested in hiring a bookkeeper, you can get in touch with us today. Our financial experts provide a free consultation to see if we’re the perfect fit for your business. You can also download our whitepaper Outsourcing: How to Make it Work to find out how you can succeed in outsourcing your bookkeeping tasks.