In business terms, bookkeeping may be accounting’s plainer cousin, but doing it well can make the difference between growing your business and merely ticking over, writes John Cradden.
Bookkeeping involves keeping track of financial records like receipts, expenses, invoices and bank statements and entering that information into a database.
By definition, this can provide owners with a strong insight into their company’s business. As well as helping to flag cashflow issues before they become a problem, bookkeeping can help identify trends within your business.
While bookkeeping is different from accounting in the sense that it doesn’t go into deeper financial analysis or strategies, it’s still part of the general accounting function. Accountants may oversee your bookkeeping in the sense that they can check to make sure financial records are being maintained correctly, but they won’t generally get involved in the data entry. They will use the information gathered by bookkeeping to calculate the business tax returns and financial statements.
Setting up a good bookkeeping system is an essential part of any business, particularly a new one. Here are some top tips:
Separate your business from your personal finances
A mistake that many business owners make is not separating business and personal finances. This can cause huge headaches in the long run. Open a business bank account as soon as you begin your business and set up a separate business credit card. This separates your accounts and makes your business appear more professional. Additionally, it helps speed up the process of filing taxes as you do not need to spend hours manually sorting business and personal expenses.
Digitalise your receipts and records
A big part of bookkeeping is simply gathering, sorting and filing receipts and records. But the biggest problem can be finding them, when you need access to them, particularly for tax purposes. Digitalising your receipts and records as soon as you get them will save you time in the long run.
Schedule a regular time for doing it
Scheduling a regular time every week or so will save you time in the long run. If you put off bookkeeping for too long, you will end up with overdue invoices or figures that do not add up. Working with your books weekly will help you make sure everything is up to speed.
Part of the time you spend on bookkeeping will be about carefully recording your transactions and expenses but also the business of reconciliation, which is where you match your bank account transactions with the figures from your books from an opening date to a closing date. Bank reconciliation statements will help you find any entries you may have doubled up on or forgotten to enter in your books and plays a huge role in ensuring you pay the right tax.
Automate where you can
Entering relevant data into a spreadsheet and reconciling numbers manually is extremely time consuming. Good accounting software will let you import your bank statements automatically match the transactions with the information in your accounts. You can see exactly what’s been added and make amends if you need to. When it comes to speeding up the process of chasing clients for timely payments, good software should have automation features built-in so you can set up automatic emails before and after their payment due date.
Plan ahead for taxes
No small business can avoid submitting tax documents, so it’s important not to miss deadlines. Start early and keeping up to date will make the process much easier. Depending on your accounting software, you can set it up to tag expenses that qualify for tax relief. It’s sensible practice to always put away a percentage of your earnings every month to cover all eventualities. Don’t forget, as well, that businesses are legally required to keep records for six years.
Work with a professional
While accountants are not bookkeepers, working with them will help your business ensure all of your bookkeeping is up to date and accurate. A professional accountant will advise you on which accounting software will work best for your business and set this up correctly for you.