Bookkeeping lets you know how your small business is doing. So what does it involve and how do you make it less boring?
What is bookkeeping?
Bookkeeping involves recording and classifying all the financial transactions in your business. It’s keeping track of what your business spends and what your business receives. These tasks used to be managed using books and ledgers, hence the name ‘bookkeeping’. Originally the transactions would be recorded in daybooks, cashbooks, or journals and then transferred to a ledger. Bookkeeping software has now pretty much replaced the need for physical books.
Why do small businesses need bookkeeping?
An accurate, well-kept set of books is a great start to running a successful business. Here’s why:
• You can check that you’re making more money than you’re spending
• You’ll have reliable financial information for planning and budgeting decisions
• You can see if a cash crunch is coming and take steps to avoid it, by watching when you need to pay suppliers
• You’re more likely to find incorrect payments (or even fraud) that might cost you money
• You can complete accurate tax returns
• Having your financial information organised makes it easier for you to work with lenders and investors.
How to do bookkeeping
The two most important tasks in accurate small business bookkeeping are recording your sales and reconciling your transactions. Traditionally these tasks were done by writing in a cashbook or inputting data into a spreadsheet. These days, business owners are now more likely to download sales data directly into their books from point-of-sale or invoicing software.
Reconciling your transactions involves regularly cross-referencing your business books against your bank statements to check that the transactions and balances match – and identifying the reasons if they don’t. Often bank fees, interest payments, deposits, and payments that haven’t yet hit your bank accounts will need to be accounted for. The sooner you reconcile transactions, the sooner errors can be found and corrected. It’s better to do it often so the work doesn’t pile up.
How software can help
Many small businesses use online software such as Xero to speed up these jobs and cut down the chances for human data-entry errors. These tools can help by pulling transaction data straight from point-of-sale (POS) systems, invoicing software and banks which can dramatically speed up bank reconciliations. They can also pay bills automatically, send automated invoice reminders to people who owe you money, tell you when sales invoices have been paid and allow you to check cash flow from your phone. In short, saving you time to focus on the more interesting parts of running your business.
Andrew from Arcus said “Getting your online bookkeeping set up saves you time to focus on the more interesting parts of running your business and doing the things you enjoy.”