It’s hard for to imagine a time before online bookkeeping software. Writing transactions in a financial ledger reminds us of daily journaling in grade school. Imagine the errors!
With QuickBooks, we can create invoices on the fly and collaborate with our clients seamlessly. However, easier doesn’t always mean less work.
Even with an automated system, small business bookkeeping takes time and financial knowledge.
Bookkeeping is required to get your financial data and have the numbers to report to the IRS. But, it’s much more than that.
It’s not an “add-on” for when you hit your sales goal and want to treat yourself.
Bookkeeping is essential from the first day to the last.
It tells you the state of your business. For example, where are your finances? And where are they going? Can you quickly answer that question? We hope so.
There are bookkeeping basics you shouldn’t ignore — like whether you want single or double-entry bookkeeping.
When you record and classify transactions correctly, you can make better business decisions, such as increasing your rates or qualifying for a loan.
If you’re new to managing your finances, at least do these 8 small business bookkeeping basics to get started.
- Create a workflow
Take time to set up your bookkeeping workflow, including your services, profile information, autoresponders, chart of accounts, customers, vendors, invoices, and proposals.
- Track Your Income
How will you get paid? A flat monthly rate or do you need to send an invoice? Know how your customers come through the door. Keep a record of unpaid invoices, paid invoices, and monthly subscriptions.
- Track Your Expenses
If you don’t keep track of what you’re spending, it may seem like your business is profiting when, in reality, your bank account is empty. Keep all your receipts, either in a file cabinet or use an app like Expensify.
- Categorize Your Expenses
Don’t miss out on full or partial deductions. Organize your expenses into categories, such as office supplies, rent, advertising, travel, meals, and entertainment. Do this as soon as you record the expense, so you don’t forget what you spent money on later.
- Track Owner Draws
Congrats! You’re paying yourself! Record how much you withdraw and double check that the right accounts were credited or debited.
- Know Your Bottom Line
Are your profiting or losing money? Know how much is left in your business after you take out expenses. You should know your bottom line EVERY DAY so you can decide if you need to make improvements.
- Pay Estimated Income Taxes
This is when you pay tax on income that’s not subject to withholding tax, such as interest, rent, self-employment, or business earnings. You can learn more about how to pay quarterly taxes here.
BONUS TIP: Be Consistent
Above all, be consistent from one accounting period to the next. It’ll help you make accurate comparisons, so you have a clear picture of your finances over time. Use a checklist or create a bookkeeping style guide until it’s second nature.
Being diligent about your bookkeeping will lead to less stress, less worry, and less wonder about your business. You don’t have to know it all — but knowing the basics is a good start.
As your business grows, you’ll see the signs it’s time to hire a bookkeeper (hint: when you’re overwhelmed). Speaking of signs, how did you know it was time to start your small business?