Maintaining accurate and organized records of financial transactions is crucial for businesses. These records provide insights into income, expenses, and the overall financial standing of the business. By setting up accounting for small businesses, you gain better control over your finances and make informed business decisions. In this blog post, we will guide you through seven essential tips to help you establish a solid foundation for your small business accounting.
What is Bookkeeping?
Bookkeeping consists of creating and maintaining an organization’s financial records. It involves consistently recording a company’s financial transactions, as well as the archiving and secure storage of financial documentation. When bookkeeping is handled properly, the information is accurate, well organized and helpful so that business owners or shareholders can make key financial decisions involving the company.
To understand the financial health of your business, you need to have precise bookkeeping
⚫Bookkeeping involves verifying receipts, depositing payments into a bank account, and keeping clear records so that all financial information is easily accessible when needed.
⚫Bookkeeping is important because accurate accounting records are essential to a company’s sustainability.
⚫Accurate bookkeeping helps a business manage its cash flow, meet its financial obligations and plan its investments.
To get started with bookkeeping, you need to become familiar with and set up a chart of accounts, record all financial transactions, reconcile bank accounts, and run monthly financial statements. This article is for business owners who want to improve their knowledge of bookkeeping and follow best practices in setting up a system to record the financial activities of their company.
1. Select an Accounting Method:
Before diving into small business accounting, it’s important to choose an accounting method that suits your needs. You can opt for cash-basis accounting, accrual basis accounting, or a modified cash-basis approach that combines elements of both.
2. Determine How to Record Transactions:
Consider the different ways to record transactions in your books. You can manually record them in a spreadsheet, hire an accountant, or leverage accounting software. Using accounting software not only automates manual tasks but also saves time and money. Outsourcing your accounting to a reputable provider like Acenteus is also a cost-effective option.
3. Set Up Charts of Accounts:
Organize your financial statements by setting up a chart of accounts (COA). The COA categorizes accounts into key subheads like assets, liabilities, equity, revenue, and expenses. As your business grows, you can further break down these accounts into sub-accounts for better transaction organization.
4. Open a Business Bank Account:
To maintain clarity and accuracy in your financials, it’s essential to separate personal and business finances. Open a dedicated business bank account to prevent accounting errors, inaccurate tax filings, and overspending.
5. Determine Your Business Payment System:
Establishing a clear and easy-to-understand customer payment policy is vital for business growth. Decide on the payment methods you will accept, such as cash, checks, credit cards, or mobile wallet payments.
6. Maintain a Record of Expenses:
Tracking expenses is a critical aspect of small business accounting. Ensure proper documentation by keeping receipts, bank and credit card statements, invoices, bills, canceled checks, previous tax returns, and proof of payments. This will assist you during tax time and provide a comprehensive overview of your expenses.
7. Schedule and Set Reminders:
To streamline your bookkeeping tasks, create a schedule or accounting cycle and stick to it. Begin by scheduling the opening account balance and closing books periods. Follow a standard process to record transactions and set reminders for timely updates of your books.
By following these seven steps, you can establish a strong foundation for your small business accounting and pave the way for financial success. Take control of your finances, make informed decisions, and drive your business towards growth and prosperity.
If you require any help in managing your bookkeeping, feel free to contact us by clicking below and we will be happy to get back to you.
