When you own a business, recording and maintaining the transaction history of your organisation is a must. Of the two ways of doing so, hiring a bookkeeper is more suitable for a small business than hiring an accountant. This is a cheaper and more convenient solution for small businesses. But to reap the full rewards of this, you must know how to keep the books for a small business.
To keep the books for a small business, you must select an accounting method after setting up a chart of accounts. Then you need to open a business account and track and record incomes, sales, and expenses. Finally, you have to back up and secure all your business data.
Here is a step-by-step guide to how you should keep books for a small business.
How to Keep Books for a Small Business?
Business owners have to keep track of and record their financial transactions properly. This can be done by either hiring an accountant or a bookkeeper. Hiring a bookkeeper is a more viable option for a small business, as it is cheaper and doesn’t need much expertise.
Even then, you may have question in you mind “How do I keep books for a small business so that the records are transparent and efficient”. Here is a step-by-step guide on how to do simple bookkeeping for small business.
Setting up a chart of accounts
Before proceeding with how to keep books for a small business in Australia, you, as a bookkeeper, should set up a chart of accounts. This will help you categorize your business into various forms of transactions. These categories include revenues, expenses, assets, equity, and liabilities.
Choosing an accounting method
Next, you need to choose an accounting method suitable for your organisation to keep a ledger book for a small business. There are two accounting methods you can choose from, the cash basis and the accrual basis. You record the transaction when you receive or pay any payment on a cash basis. On the other hand, an accrual basis records the business transactions when it happens, irrespective of where the cash flows are.
Opening a business account
The next step in how to keep books for a small retail business is opening an account for your business. Always make sure to keep your personal and business accounts separate. This will make your life easier as you track and record your business transactions.
Tracking and recording transactions
Once everything is set up, you can start tracking and recording your transactions. This includes creating invoices for every sale you make and tracking every payment you receive. The easiest way is to use unique identifiers like invoice numbers to match the transactions.
Reconciling bank statements
The best way to do bookkeeping for small business is maintaining transparency in keeping books. The most effective approach is to routinely align your bank statements. Make sure the bank statements match the transactions that are recorded. You can find out all the errors or discrepancies if you do this.
Maintaining an asset register
Calculating the value of your assets is very necessary for you to make strategic business decisions down the line. An asset register will make life easy for you, as you can keep track of all your business assets, such as tools, vehicles, machinery, etc. You can also keep track of their depreciation, date of purchase, costs, or any other related detail.
Managing accounts payable and receivable
Next, you need to keep track of the amount you owe to your suppliers and the amount you are owed by customers. If you have any overdue bills to your suppliers or will receive payments, send reminders to the persons. This will not only help balance your payments but also maintain good relationships.
Preparing financial statements
A big part of bookkeeping for small businesses is preparing financial statements. You have to generate financial statements regularly, such as income statements, cash flow payments, and balance sheets. They are a major indicator of your business’s financial performance and position.
Backing up the data and securing them
Your business data is the most important asset of your business. Sometimes businesses land in hot water because their data is corrupted or deleted by mistake. To avoid that, you need to back up your data and secure them regularly. To do that, you should use cloud services or external hard drives. To protect sensitive information, take necessary security measures.
Seeking professional assistance
The issue with hiring a bookkeeper, or bookkeeping services in general, is that it can be a little high-level expertise. That’s why people often face difficulties while performing their duties as bookkeepers. When that happens, you don’t need to worry and seek professional assistance.
If you think that bookkeeping for your business is proving too difficult for you, you should outsource your bookkeeping responsibilities to firms providing similar services.
We provide both professional assistance as well as online bookkeeping services to small businesses worldwide that you can take advantage of.
Maintaining books is essential for your business’s health, growth, and security, regardless of size. Once you know how to keep books for a small business, you can ensure your business thrives and grows. You will also avoid legal troubles by keeping your books properly.
Can I manage my books without accounting software?
Yes, you can manage your books without any accounting software. While accounting software makes your life easier, it is not a must that you have them.
How long should I retain financial records?
It is very important to retain financial records, even after their use is finished. It is better if you retain your financial records for at least 5-7 years.
What reports should I generate from my books?
Generating reports is a very important part of bookkeeping. You have to generate income statements, balance sheets, cash flow statements, etc, from your books.
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