Small Business Bookkeeping
A Complete Guide
Small Business Bookkeeping Basics
Here’s a truth that business owners discover one way or another: Dreams and goals run on a process of financial records and planning. The name of that process? Bookkeeping.
As the recording of your businesses’ financial records, bookkeeping is an integral part of your company’s foundation. Even so, many small businesses are in the dark about bookkeeping, and how to best create a process that is both helpful and efficient. With the right tools, however, poor bookkeeping doesn’t have to keep your company from achieving its potential. In fact, it can drive more business, keep your records in accordance with the law, and make filing your annual taxes easy.
Here are a few ways that bookkeeping can be helpful for your business:
Bookkeeping makes it easier to stay accountable.
By recording your income and expenses accurately, you can get a clear view of your business, where it needs to improve, and where the most significant opportunities for growth.
Bookkeeping helps you prepare for the future.
With daily, weekly, or monthly records of your financial history, it’s easy to get a clear picture of how your business is performing, but it’s also an excellent way to help investors quantify the value of their contribution. As a current record of your financial information, small business bookkeeping records can help current and future investors make well-informed decisions about supporting your business.
Bookkeeping improves your cash flow.
With a routine of revenue, expenses, liabilities, and receivables, bookkeeping keeps tabs on when your customer and vendor invoices are paid. You can ensure everyone is paid on time, avoid late fees, and increase the average amount of cash you have on hand with better planning and management.
Now that you know a little more about why small business bookkeeping is essential, it’s time to dive into what you need to implement
a successful bookkeeping process. But first: What’s the difference between bookkeeping and accounting?
Bookkeeping vs. Accounting
Don’t worry if you don’t know the difference between bookkeeping and accounting. That’s what we’re here for.
Here’s a quick rundown on what you need to know:
What They Do
Bookkeeping is about logging financial data and keeping you up to speed on your current data reports. There are two types of bookkeeping: single-entry and double entry.
Accounting is more strategic and includes summarizing, interpreting, and communicating financial transactions.
Provide accurate, current data on your businesses’ financial health and maintain records of all financial transactions systematically.
Help you set up your company for growth, including creating ledgers, budgets, provide advisory services, and communicating your company’s financial situation.
Financial Statements Prepared?
No — financial statements are not prepared
Yes — financial statements are prepared
Bookkeepers predominantly receive on-the-job training and experience.
While not required, most accounting professionals have a bachelor’s degree in accounting and many are also Certified Public Accountants (CPAs).
Bookkeeping is maintaining a record of business finances. No analysis is required.
Accounting uses bookkeeping information to interpret the data and create financial reports.
As you can see, there’s one big difference between bookkeeping and accounting: analysis. Whereas bookkeeping includes data entry, balancing ledgers, and reconciling statements, accounting goes the extra step to provide services that will help your business grow by analyzing your data reports and providing insights to what that information could mean for your business.
If you’re a new business however, you may not need the extra services that come with an accountant, which makes bookkeeping a good option for you. If you agree with the following statements, you need bookkeeping.
I need to…
- Manage customer billings and payment.
- File vendor bills and payment records.
- Prepare and send invoices.
- Make payments.
- Balance the checkbook.
- Meet payroll tax requirements
- Complete a bookkeeping cleanup
Small Business Bookkeeping Tips
Now that you know what small business bookkeeping looks like, let’s get to the bottom of what you can do to optimize
your current system — or get you started on creating a bookkeeping process that works.
1. Set up (and manage) your accounts.
Pro Tip: You can get a FREE QuickBooks or Xero license when you
sign on through Acuity. Get started now >>
If you’re not already using an accounting software service like Quickbooks or Xero, it’s time to get started. A digital service will help you make heads or tails of your data entries and bank reconciliations, and give you a central location to house your business finances. Apart from being able to automate a lot of manual bookkeeping processes, these platforms will also help manage profit and loss statements, send invoices, and set up payroll (just to name a few).
2. Set up your payroll.
While there’s no hard and fast rule for the minute details of payroll, if you’re a new business, you’ll most likely wrap your payroll function inside of your bookkeeping software. Streamlining these functions will make your small business bookkeeping very tight, and eliminate the possibility for inconsistencies in your records.
However, if you need options because you’re a little bigger than “brand new,” here are a few payroll platforms to consider:
3. Leverage bookkeeping to make your life easier during tax season.
Pro Tip: The R&D tax credit is often missed by small businesses.
See if you qualify >>
As a business, your taxes will depend heavily on what types of products or services you sell, how the structure of your business is arranged, and whether or not you intend to hire contractors or in-house employees.
Here are the four types of taxes you’ll have to file:
- Income Taxes: There are five types of businesses according to the U.S. government: Sole proprietorship, partnership, limited liability company (LLC), S corporation, and C corporation. By defining your business among these categories, you will know how to report your company’s income and expenses to the IRS.
- Sales Taxes: If you sell products, this is the state-assigned tax you’ll collect from your customers. Since these numbers vary by city and county, you’ll need to keep track of the different fees based on multiple locations. Quickbooks has a great feature that easily helps you stay on top of these figures if you’re working with the software platform.
- Self-Employment Taxes: If you are self-employed, these are the taxes that you have to pay the government if the income exceeds earning of $400 or more. These taxes go toward Social Security and Medicare and have quarterly deadlines rather than annual ones.
- Payroll Taxes: If you are not self-employed, you’ll need to pay taxes on the salary that you pay your employees. In addition to filing payments, there are additional payroll requirements, such as i-9 documents, that must be completed to operate as a legal business.
From configuring the best ways to file your expenses to making sure your line items are correctly attributed, working with a tax specialist early in the game is one way to ensure that your filing goes smoothly.
4. Get started with accounts receivable
and accounts payable.
For additional resources on common small business bookkeeping needs,
problems, and solutions, try these resources:
Before we dive into what you need to do, let’s start with some definitions.
What is accounts receivable?
Accounts receivable is the money that is owed to a company by a supplier, and are generally noted as an invoice that has been ordered, but has not been paid for. Typically, these invoices are paid within an agreed-upon time frame. For example, a wholesale bakery that delivers fresh rolls to a coffee shop daily will have accounts receivable for services rendered.
- What you need to know to set-up: Accounts receivable keeps track of what your business is being paid, so having a clear indication of your inbound cash flow is crucial. From preparing and sending invoices to providing statements, a reliable system for accounts receivable will help you manage your business accounts and grow for the future.
What is accounts payable?
Accounts payable is the money that’s owed by a company to a supplier, and it will be shown as a liability on a company’s balance sheet. For example, a gym who buys sports equipment on credit will have accounts payable for the sports equipment.
- What you need to know to set-up: Equally as important as keeping track of the inbound cash, you’ll need to ensure your business is paying the vendors, lenders, and landlords that expect payment on a regular basis. With a reliable account payable system, you can ensure your bills are being paid on time. Together, these functions are crucial to a successful small business bookkeeping plan. However, if you don’t want to be involved with the day-to-day handling of these functions, you may consider handing off your bookkeeping to someone else.
Hiring a bookkeeper vs. In-house bookkeeping
It’s admittedly scary to hand over your financials to someone else, but here are some reasons to consider outsourcing your bookkeeping work:
- You don’t have enough time
- You don’t have the expertise
- You don’t have the patience or you dread this part of your job
- Your books are a mess and seemingly beyond repair (but not for Acuity – no books are too messy for us!)
- You’ve missed filing taxes simply because you don’t even know what your financials look like
If you want to explore outsourced bookkeeping, get in touch with us to evaluate your options. We can answer any lingering questions you have and put your mind at ease with whatever you decide.
While many bookkeeping duties will be uniform regardless of your business type, some changes happen from industry
to industry. Here are some key things to keep in mind based on different sectors.
Small business bookkeeping can be overwhelming to new business owners, but it doesn’t have to be as long as you keep to these key takeaways:
KEY TAKEAWAY 1
Bookkeeping is crucial to the success of any business, but especially small businesses. By keeping track of your financials, you are more prepared for tax season, have records to show potential investors, lenders, and partners, and can get a snapshot of your business health at a moment’s notice.
KEY TAKEAWAY 2
Bookkeeping is straightforward data about your business’s finances. It includes maintaining records and financial transactions in a repeatable, transactional way, and the tasks can include: managing customer payment, balancing the checkbook, and more.
KEY TAKEAWAY 3
If you’re ready to hand off the bookkeeping to someone else, it’s important to know what you need in terms of hours, daily tasks, and budget to find a solution that is right for you. For those looking to scale, an outsourced bookkeeper is an efficient option.
Now that you have a good understanding of the basics every successful small business bookkeeping solution needs to have, you’ll be better prepared to scale your business, approach investors, and work with your lenders. At the end of the day, companies that keep up with their finances perform better.
By working with a partner like Acuity, we can help you efficiently manage the bookkeeping, saving you anywhere from 21 to 2100 hours a year keeping track of your books and taxes — your time that would be better spent creating new goals, managing your team, and growing your business.
Don’t know where to start in working
with an outsourced bookkeeper?
Get in touch with one of our small business bookkeeping experts, and we’ll help you
move your business forward with confidence.