We’re always happy to hear when our clients are starting a new, small businesses. But we can’t help but worry when we hear things like “oh, I’ll just get some bookkeeping software and manage it myself” or “I’ll hire my nephew who is in school, I’m sure It’s easy” or “what do you mean cash versus accrual accounting?”
We want all of our clients to succeed in whatever they do, so we’ve put together this short guide that talks about the basics of small business bookkeeping and what your options are for accurate and effective day-to-day record keeping. Accounting for small business is a challenge, and we want to help.
WHAT IS BOOKKEEPING?
Small business bookkeeping is the record-keeping process of all financial activities of a small business. This is not accounting. It is considered part of accounting, but actual accounting covers much more than mere transactional recording. We’ll talk about what accounting is in another article. But we wanted to bring this up now because it’s a common point – bookkeepers are not necessarily accountants and not all accountants are certified public accountants (CPAs) or Enrolled Agents (EAs). Kinda like a squares are rectangles – same same but super different. And we love them all.
WHY IS BOOKKEEPING IMPORTANT FOR A SMALL BUSINESS?
Bookkeeping for a small business is vital if you want to be positioned for future growth. Without a skilled bookkeeper and a streamlined transaction process, you won’t be able to track your profits and losses, report taxes correctly, apply for loans or chart your growth. The bookkeeping process for every business is different, but all businesses share certain fundamentals. A small business tax accountant can guide you through this essential process.
Please note, if you are a charity, bookkeeping for nonprofits also works pretty similar as it does for regular businesses but with its own special quirks (and much crazier tax reporting).
STEPS OF BOOKKEEPING – SETTING UP YOUR PROCESS
Bookkeeping can seem difficult, but setting up a streamlined process based on the needs of your business is actually easy.
- Pick the bookkeeping platform you will use
Depending on the nature of the business that you run, this is as simple as either tallying up the receipts from a cash register at the end of the day or as complex as deploying bespoke bookkeeping software. For small businesses, we highly recommend using QuickBooks Online which offer various types of functionality and configuration options at various price points. You can also just use a spreadsheet, but the needs of your business will most likely require reporting and invoicing functions. Your system will also need to produce the three essential reports for bookkeeping – your cash flow statement, profit and loss statement, and balance sheet.
- Determine workflow – daily, weekly, monthly and per quarter reconciliation
When accounting for a small business, the workflow for bookkeeping should include daily cash transactions, tallying investments, reconciling income and invoices, and settling outstanding payments.
Part of your workflow should include procedures for handling accounts payable (settling liabilities and debts owed) and accounts receivable (settling debts owed to the business and recording incoming assets). This process is usually covered with bookkeeping software, but it’s always smart to work with your accountant to make sure that the process matches how your business works. Books should be reconciled without fail daily, weekly, monthly and per quarter. It is essential to accurate reporting and the financial security for your business.
- Hire your bookkeeper – yourself, remote, part-time, or full time
Hiring a good bookkeeper is one of the most important things that you can do. Your bookkeeper measures the heartbeat of your business and can alert you to problems even before they start.
You have 4 possible choices, with pros and cons –
· Keep your own books – This choice is the cheapest but it also has many potential pitfalls. As a small business owner, your time is probably strapped as it is, and taking the time to enter and reconcile the day’s transactions can be exhausting. This option really only works for freelancers and small business owners who are just starting out.
· Hire a remote bookkeeping service – Using a remote bookkeeping service that only needs an upload of your day’s transactions can be a godsend. There are many fine remote bookkeeping services that can use their resources to connect to your sales POS system or financial software and do all the work for you.
· Part-time bookkeeper – One of the most common arrangements for many small businesses, is a part-time bookkeeper who reconciles their books once weekly.
· Full-time bookkeeper – As your business grows, so will the bookkeeper role. This is usually the sign of a maturing business because financial functions become more complex. Whoever you choose, they will need to work closely with your accounting firm and tax accountant to create processes that simplify and streamline reporting.
OTHER BOOKKEEPING TIPS
Cash accounting versus accrual accounting – Cash accounting tracks income and expenditures as simple credits and debits, while accrual accounting tracks future income and expenditures as assets and liabilities (even if the money has not been received or spent). This is important when tracking interest income or payments in the accounts payable and receivables process.
Dual entry bookkeeping – This method records entries as both debits and credits. While this is more complicated than single-entry bookkeeping, its essential in accrual accounting and leads to more accurate reporting. Master this topic is essential to accounting for small business owners.
HOW WE CAN HELP
Syntegric Advisors is the leader in providing accounting help for small businesses in the San Gabriel Valley. If you are looking for professional small business bookkeeping services in Southern California, you’ve found the right place.
We can also answer any questions you may have about bookkeeping for small business. Contact us today by phone at 626-475-2999 or email us via firstname.lastname@example.org.