Many business owners have no idea where their money goes. Why? Bookkeeping can be overwhelming and tiring if you have never dealt with finances before. The unpredictable nature of running a business can make bookkeeping feel even more daunting. Because documentation is key, small business owners need to record every penny going out and coming in.
What is bookkeeping?
Bookkeeping is the act of logging financial transactions for your business so you will be able to see exactly how much you make and where the money is going. By keeping proper accounts, you are always aware of your business’s financial situation, which enables you to make wise financial decisions that can help your business grow.
Moreover, to prevent your finances from being scattered here and there, It’s best to keep books. They are in a single place where you can access them when it’s time to apply for a loan or grant. Also, you are able to see the bigger picture at a glance.
How to do Bookkeeping for Small Businesses.
If you use cash accounting, recording your transaction when cash changes hands will make preparing your bookkeeping easier. You can use this checklist to keep your bookkeeping records organized and give yourself confidence.
- Keep personal and business accounts separate: The beginning of bookkeeping is separating personal accounts from business accounts. Regardless of the type or size of business you own, you need a business account.
- Choose your bookkeeping method & set up accounts: There are 2 bookkeeping methods; single-entry and double-entry. While the single-entry method is easier, experts recommend the double-entry method as it lets you record transactions twice. One as credit and the other as debit. This helps to eliminate mistakes in the recording process. Once you’ve decided on the preferred method, the next thing to do is to set up accounts. FYA
- Use CapiCollect to set reminders for important payment deadlines: You can eliminate the pain of having to remind your customers of important payment deadlines with CapiCollect.
- Know and keep a record of every business expense: This is the crux of the bookkeeping process. Record every financial transaction under their respective accounts. This is to ensure that your account balances match.
- Balance and close the books: Balancing and closing the books is how you are able to reconcile the transactions you have done. If your account balances do not match at the point of closing books, you can refer back to your journals to see mistakes and correct them.
- Prepare financial statements: Now that you have balanced your books, you should draw insights from the balance. The insights serve as the bigger picture of your financial tracking activities. From bookkeeping, you can prepare your:
- Balance sheet
- Profit and loss statement
- Cash flow statement
As a business owner, you can use bookkeeping software to simplify things for you. But as a business grows, bookkeeping can become complex and overwhelming and you might want to hire a professional at this point. But whatever route you choose to go, it’s important that you as the business owner understand the basics of bookkeeping.
