It is often either ignored totally or not taken seriously sometimes. However, bookkeeping is one of the requirements demanded of small businesses by banks or financial institutions before they are granted loan facilities to start a business or recapitalise an existing one.
Bookkeeping is the process of recording a business’s financial transactions into organised accounts on a daily basis. It can also refer to the different recording techniques businesses can use. It is an essential part of the accounting process for a few reasons.
For instance, when a business keeps transaction records updated, they are in a better position to generate accurate financial reports that help measure business performance.
It helps the business owner to track the level of stocks and be in a position to know when to restock. For instance, for those who sell fast Moving Consumer Goods (FMGC), its enables the business owner to know which products move fast and those that stay on the shelves for long.
Many small businesses do not want to pay taxes because of bad bookkeeping records which prevents them from tracking their earnings and their expenditures. However, with detailed records of all transactions, it becomes handy in the event of a tax audit.
Proper bookkeeping drives a small business to success. According to SmartBiz Small Business Blog, this is because it is a foundational accounting process, and developing strategies to improve core areas of one’s business would be nearly impossible without it.
Tips to consider
Meanwhile, relevant as bookkeeping is, implementing the wrong system for a business can cause challenges. To avoid these, here are a few tips on bookkeeping for small businesses.
1. Keep your receipts
Receipts are a major source of financial information for every business. It tells how much has been spent in stocking, whether raw materials for production or replenishing an old stock. Because of that, business owners must not throw receipts away! Whether it be a sale or a purchase, all business transactions should be backed by official records that list the amount, date, and other key information. That way, one can put together summaries of every activity and report it properly when tax season comes around.
Remember that receipts don’t just include customer transactions. They can also apply to business meals, outings, and entertainment, work travel, vehicle expenses, gifts and office-related purchases.
For tax purposes, it is extremely important to ensure that the owner logs the purpose of the transaction. Was it a strategic planning meeting? A vendor appreciation package? A business trip? As a small business owner, it is possible one might find that some of your expenses are partly for personal use and partly for your company, like cell phone bills, transportation costs and home office purchases.
In each case, one can deduct the percentage that applies to your work. With thorough financial documentation, one will have the records needed to back up any claims.
2. Track your expenses
Tracking revenues and expenses should be a foundational element of a small business owner. This will help the owner to answer questions about his or her operations, prepare tax returns, and measure how the business is growing over time.
Right from the start, the business owner must make sure to have a system in place for keeping track of all transactions. Consolidating the receipts in one place will make the process that much simpler when it comes to building daily or weekly or monthly reports, making calculations, and measuring business growth. That’s why bookkeeping is a central part of running a business.
3. Establish bookkeeping procedures
Set up a bookkeeping routine as soon as possible so that you can follow a consistent process every time. Whether that be organising paper receipts with folders or using an accounting software and keeping your books fully virtual, follow the same steps regularly to ensure that nothing slips through the cracks. With large stocks, it is easy to lose track of the actual and that gives some employees a field day.
But it is imperative to know that the more transactions you have, the more often you should update your records. While there are plenty of DIY options out there, you can also hire help.
4. Reevaluate your methods
As the business grows, make sure to consider whether the bookkeeping practices should grow or change with it. You might have started with a simple spreadsheet or a totally manual system but are now considering purchasing a software to help one to become more efficient.
When these decisions come up, think about the time that goes into your current processes and how much it might be costing the business.
With the right solution, one will be focusing more resources on the business instead of spending time organising various paper documents or working with complicated software to stay on top of your books. Try out different solutions and see which one fits best for your unique situation.
5. Use tools to help keep track of goals
With financial documentation readily available, a small business owner is prepared to manage and grow the business. To get the most value out of bookkeeping, it’s important to have a system in place for interpreting what one’s numbers mean and assessing the financial health of the business.
Especially as one grows and considers applying for outside financing, it’s worth looking at the business from the perspective of a potential lender.
As a small business owner, you probably know about the bookkeeping involved in running your own operations. Staying organised and on top of your finances should be a priority. Not only will that help one to gain insight into the business growth but will back up any financial decisions one chooses to make.