Small Business Bookkeeping Guide (Simple and Practical Tips)

Whether you’re a seasoned small business owner or a new entrepreneur, you may find this ‘Simple & Practical Guide to Small Business Bookkeeping’ immensely useful.

In this blog post, we’ll dive into the intricacies of financial record-keeping, explore different approaches, and provide essential tips to keep your books organized. We’ll also shed light on the importance of hiring an expert bookkeeper and how to find a reliable bookkeeping service if you’re looking to outsource.

We hope you’ll appreciate the significance of proper bookkeeping and also gain some actionable insights. Read on to embark on your journey to achieving flawless and truly effective bookkeeping, contributing to your business’s success.  

Bookkeeping at a Glance

• The need for bookkeeping

Simply put, bookkeeping pertains to the record-keeping of financial activities and transactions by the business in a systematic way. These include money flows (via cash and checks), customer invoices, purchase receipts, supplier bills, etc. Additionally, there can be entries for bank reconciliations, tax filings, credit and loan details.

• Using software & tools for bookkeeping

Manual bookkeeping is now almost passé. With the advent of various bookkeeping and accounting software, platforms, and digital technologies, modern bookkeeping for businesses of all sizes has undergone significant changes. It has become faster and error-free, saving both time and labor.

Importance of Bookkeeping for Small Business

Maintaining precise financial records is vital for small businesses, just as it is for large enterprises. It enables tracking and monitoring of cash inflows and outflows, helping you stay informed about any financial challenges and take proactive steps to mitigate them. Additionally, it provides a comprehensive view of your profit (or loss) situation.

Why Good Bookkeeping Is Good for Your Small Business

Proper bookkeeping ensures accurate financial records, aids in timely tax filing, supports strategic planning, and enhances credibility with stakeholders. It helps you identify cost-saving opportunities, prepare an optimal budget, and build the most effective strategies for scaling up your small business.

Breakdown of Basic Bookkeeping Process

Every business – small or big – goes through these basic steps of bookkeeping in an accounting cycle:

• Classifying financial transactions

Transactions can be classified as purchases, sales, payments, and receipts. The general ledger is the primary accounting record, consisting of journals for initial transactions and financial statements for income, expenses, and the balance. Also, there are sub-ledgers for individual accounts, such as accounts receivable or payable.

• Recording transactions in journals

Double-entry bookkeeping provides a better estimation of a business’s financial status. It’s essential to maintain a sequence for journal entries. The bookkeeper should not skip any detail, be it date, accounts involved, amount, or description. Likewise, the total of credits should be equal to the total of debits in an accounting cycle.

• Posting transactions in ledgers

Once journal entries have been recorded, the next step is to post them to their respective ledger accounts. The process involves recording each debit and credit in the related account, resulting in updated totals. By doing this, preparing trial balances and financial statements becomes easier.

• Preparing trial balance

Balancing your books involves ensuring that total debits and total credits in the general ledger match. This is done through trial balances. If imbalances exist, errors are identified and corrected to ensure accurate financial reporting.

• Closing the books

Closing the books at the end of an accounting period is a crucial step to maintaining precise and current financial records. It paves the way for producing various financial statements.

• Preparing financial statements

Preparation of the profit and loss statement, balance sheet, and cash flow statements provides a comprehensive overview of financial activities and business performance over a specific period.

What’s the Right Bookkeeping Method for You?

Are you unsure whether to use cash or accrual basis when bookkeeping for your small business? Let’s compare the two!

The cash basis of accounting records revenues upon cash receipt and expenses upon payment. In contrast, accrual basis bookkeeping records transactions as they occur, regardless of when the cash flow happens. As a result, the latter provides a more comprehensive overview of financial activity.

To simplify things, many small businesses start with cash-based bookkeeping. Large or more complex businesses use accrual bookkeeping for tracking ongoing obligations and revenues.

Note that when choosing the right bookkeeping method for your business, it’s crucial to weigh the pros and cons of each approach to determine which is best for your business needs.

Importance of Bookkeeping for Tax Confidence

Here’s a quick run-down of how accurate bookkeeping can help a small business improve tax compliance, avoid penalties, and reduce its tax liability:

• Track your income: Proper bookkeeping is crucial for accurately recording all your income. This helps in calculating your taxable income.
• Estimate tax payments: By maintaining accurate records of your income, you can calculate and pay estimated taxes without fretting over the deadline. This prevents underpayment penalties.
• Minimize tax liability: Regularly updated books enable you to track expenses and deductions that can be claimed on your tax return. This helps minimize your taxable income and ultimately your tax liability.
• Maintain documentation: Having well-organized and complete documentation can substantiate your tax claims and deductions. Organized records also come in handy during audits and inspections.
• Improve compliance: Good bookkeeping ensures that you have records that meet tax authorities’ requirements, which helps in improving compliance. This helps in avoiding errors or discrepancies that could trigger audits or penalties.
• Avoid Penalties: Poor bookkeeping practices can lead to several financial and legal consequences, such as tax errors, lost deductions, late filings, and subsequent fines.

Why You Need an Expert Bookkeeper For Small Business

Small business owners may find bookkeeping burdensome, especially when they are caught up in other business activities. Hiring a bookkeeping expert can alleviate their workload and ensure their accounting books are accurate and up to date.

A skilled bookkeeper can also help you save money, increase revenue, and track financial obligations for informed decision-making.

A growing number of small businesses are now outsourcing bookkeeping to professional accounting services firms like Centelli. By entrusting bookkeeping to outsourced experts, you can confidently shift your focus to other crucial areas of your business.

Finding a Reliable Outsourced Bookkeeping Services For Your Small Business

When looking for a bookkeeping service provider, you need to consider some important factors. Here are seven tips that can help you in your search:

1. Do your research: The first step entails online searching, seeking recommendations, and checking directories.
2. Verify professional competency: Make sure the bookkeeper has the necessary qualifications and experience to meet your requirements, including a professional background and certifications.
3. Check reviews: Go through reviews and feedback from other clients to gain insight into the quality of their work.
4.  Consultation/Interview: Interviewing the potential service provider is a great way to discuss your needs and learn about their services in detail. You can book a free consultation with Centelli to learn more about our bookkeeping solutions for small businesses.
5. Discuss pricing: Learn about the service costs or charges and ensure they are within your budget. At Centelli, we follow a fair and transparent pricing policy.
6. Communication & Safety Protocols: Data safety and confidentiality are of utmost importance for any business. It is crucial to inquire about the service provider’s data protection measures and communication protocols during service delivery.
7. Terms & Conditions: Before signing the service-level agreement, it is crucial to fully understand the scope of services, expectations, confidentiality, terms, and conditions.

The Bottom Line

Maintaining accurate and organized financial records is crucial for your business’s financial health. However, accurate bookkeeping for small businesses is only possible with effective financial tracking and management.

Therefore, it’s worth considering expert assistance to streamline your efforts and reap the benefits of a more effective bookkeeping system. You can explore Centelli’s portfolio of accounting and bookkeeping outsourcing services here!