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How to Expertly Manage Your Business’s Bookkeeping with Little to No Experience

by Tracey Hrica, EA Jun 24, 2023 | Share

A Beginner’s Guide to Bookkeeping

Embracing the Numbers: A Small Business Journey

Hey there, fellow entrepreneurs! Let me take you on a little bookkeeping adventure today.

No one really enjoys bookkeeping (except maybe us accountants), but here’s the thing… You can discover something fascinating amidst the sea of numbers.

Picture this: You’re sitting at your desk, crunching numbers, feeling a bit overwhelmed by the whole bookkeeping ordeal. But then, something amazing happens! You shout, “I’m in balance!” after nailing a bank reconciliation.

Okay, okay, I might have gotten a bit carried away, but bear with me because this journey is worth it.

You see, as a small business owner, you’ll quickly realize that having accurate books is an absolute game-changer. It’s like having a secret power that unlocks success.

Not only does it keep the IRS happy (we all want that, right?), but it also allows you to understand your business inside out.

Curious to know more? Let me break it down for you. Bookkeeping is all about tracking and organizing your financial transactions, so you can keep a keen eye on your numbers.

It’s like having a superhero cape that helps identify potential problems and tackle them head-on before they become giant monsters.

But hey, I won’t keep you waiting. In this beginner’s guide to bookkeeping, we’ll explore the essentials:

  1. What is bookkeeping?
  2. Why does it matter (hint: it’s the key to success)?
  3. How to dive into bookkeeping for your small business?
  4. When should you consider getting professional help?
  5. Bonus: A Small Business Owner’s Bookkeeping Checklist

Trust me, understanding these basics can save you from the perils of disorganized finances.

So, if you’re ready to take control of your business and wave goodbye to those late-night bookkeeping woes, let’s dive in together!

What is Bookkeeping?

Bookkeeping is the process of tracking and organizing a company’s financial transactions. It’s the primary way business owners keep an eye on their numbers and figure out if they’re profitable.

Watching your numbers enables you to identify potential problems and attend to them before you are in dire straits.

Bookkeeping encompasses:

  1. Recording transactions
  2. Sending invoices
  3. Paying bills
  4. Reconciling accounts
  5. Preparing financial statements

While bookkeeping and accounting are similar, there are some significant differences.

Bookkeeping is like the foundation of a building, ensuring financial transactions are recorded accurately and organized.

It’s all about keeping track of the numbers.

Accounting, on the other hand, takes those numbers and goes a step further.

Accountants analyze and interpret the data to provide valuable insights and recommendations. They prepare comprehensive financial reports, help with decision-making, and offer strategic advice.

So, while bookkeeping is about recording and organizing, accounting is about understanding, analyzing, and making sense of the financial story.

Together, they form a powerful duo for managing a company’s finances.

Basic Bookkeeping Terms You Need to Know

There are a lot of buzzwords in business that, to be completely honest, don’t really mean anything at all.

However, there are some terms all business owners should know, especially when it comes to bookkeeping.

Memorize these terms, so that you can “talk the talk.”

  1. Accounts Payable – The total money you owe to vendors and suppliers for your purchases and expenses.
  2. Accounts Receivable – The total money your customers owe you.
  3. Assets – All the things your company owns, including cash, buildings, furniture, equipment, and tools.
  4. Balance Sheet – The breakdown of your business’s financial situation. It shows you what your company owns and owes.
  5. Cost of Goods Sold – The money you spend on products you sell to your customers.
  6. Depreciation – The lost value of an asset over time.
  7. Equity – The money you invest in your company and the accumulated profits and losses.
  8. Income Statement – A summary of your revenue, costs of goods sold, and expenses for a set period of time. It shows your net profit or loss.
  9. Inventory – The value of the stock(products for sale) that you have on hand.
  10. Liabilities – The debts your business owes.
  11. Office Expenses – Watch these “little” expenses so that they don’t turn into a significant expense that creeps up on you. As Benjamin Franklin said, “Beware of little expenses. A small leak will sink a great ship.”
  12. Payroll Expenses – If you have employees, this is your employee’s pay and the related payroll tax expenses of the company.
  13. Revenue – The money you collect from selling your goods or services.

In a nutshell, bookkeeping is like having a friendly companion that helps you keep track of every single transaction in your business.

It’s all about understanding where your hard-earned money goes, where your income comes from, and even finding those nifty tax deductions you can claim.

You can record all these financial adventures in handy accounting software, spreadsheets, or even the good old-fashioned physical ledgers.

So, with bookkeeping by your side, you’ll never lose sight of your business’s financial journey!

Why Does Bookkeeping Matter?

While it may appear insignificant at first glance, bookkeeping holds the key to financial success for your business.

Don’t be intimidated by its complexity or overwhelmed by the process.

By procrastinating and leaving it for later, you’re inadvertently inviting financial chaos.

Picture this: tax season arrives, and you’re frantically sifting through a mountain of bank statements, invoices, and receipts, only to realize you could be missing out on potential tax-saving deductions.

As if that weren’t enough, you may have to pay a premium to an accountant for their help during this stressful time.

Don’t let bookkeeping become a dreaded chore; embrace it as your ally in achieving financial stability and maximizing your profits.

Here are Four Reasons Bookkeeping Matters:

  1. Preparing your taxes – You will need to know your net profit. The only way to figure that out is to have accurate, up-to-date books showing your revenue and expenses. 
  2. Knowing where your money is going – Producing financial statements is the only way to see a picture of your small business’s financial health. Are your sales down? Spending too much on advertising with little return on investment? Is there cash flow to cover next week’s payroll? The only way to know for sure is to have your books up to date and your accounts reconciled.
  3. Borrowing money – Unless you borrow from friends or family, you need to have up-to-date financial statements. These are usually required when getting a line of credit or business loan from a bank.
  4. Catching errors quickly – If you only reconcile your bank account and the end of the year, you may not find errors line erroneous bank fees or fraudulent transactions until months later, when the window for disputes may have passed. You want to be able to identify mistakes today, not six months from now.

You might think bookkeeping is boring, and you are probably right.  

However, there are worse things than boring. 

Like, your business failing. 

Or being audited.

When you have some basic bookkeeping knowledge, you can track your business operations and avoid costly mistakes.

How Can You Get Started on Your Bookkeeping?

Now that you know what bookkeeping is and why it matters, here are three essential tips for effective bookkeeping.

  1. Keep track of EVERYTHING.
  2. All money in and out should go through the business checking account.
  3. Keep your business and personal finances separate.

The exact nature of your record-keeping system is up to you. Whether it’s a simple spreadsheet or specialized software.

Just don’t forget to track your income and expenses regularly; consistency is key.

If you’re feeling overwhelmed, consider reaching out to a professional bookkeeper or exploring online resources for guidance.

Remember, taking those first steps toward managing your finances will bring you closer to a brighter, more prosperous future for your business!

Eight Steps to Start the Bookkeeping Process

  1. Open a business bank account – A separate bank account is a must-have for businesses of all sizes and should be used exclusively for business transactions. This way, you will know that every transaction is business-related, and you can prove to the IRS that you are serious about tracking and maintaining your financial records.
  2. Pick a Bookkeeping Software – If you are comfortable with spreadsheets, they are an option as well. But practically speaking, a software package like QuickBooks Online is not terribly expensive and can pay for itself in the time you can save.
  3. Invest in a few hours of a professional bookkeeper’s or accountant’s time – While you may not be ready to outsource your bookkeeping, you will want a professional to help you establish procedures, set up your chart of accounts, and familiarize you with the software or spreadsheet system you will be using.
  4. Maintain daily records and categorize every transaction – Remember, an Amazon transaction on your bank statement might not mean much to you six months later. Was it for office supplies? Marketing materials? Snacks for the break room? You don’t want to have to do a lot of investigating later. Record each transaction while it’s fresh in your mind.
  5. Choose a system for storing your documents – If you are audited, the burden is on you to validate your expenses. So, make sure to keep supporting documents, like receipts for all of your financial data. You can decide to file and keep paper copies, use a cloud-based system like DropBox, or, if using QuickBooks Online, utilize their Receipt Capture and Mileage Tracker features.
  6. Reconcile your bank accounts – Although most accounting software allows you to automatically import your bank transactions that doesn’t eliminate the need for bank reconciliation. It is necessary to account for any outstanding items that haven’t been cashed yet. You also need to review the bank statement for errors. You must be able to match your software’s cash account to the actual bank statement total. This process can be challenging, and you may need an accountant to help you find any problems.
  7. Stick to a schedule – If you’re like most small business owners, you have a thousand things to do, and it’s easy to push bookkeeping to the back burner. One way to avoid this is to schedule time each week to record invoices, bills, sales, and purchases. Set a time each month to reconcile and review your financial reports.
  8. Keep tax deadlines in mind – there are deadlines for estimated payments, sales tax, and payroll taxes. Make sure you have them committed to memory and on your calendar.

Should you get help from a professional?

If your business is a side project with a limited budget, you can probably DIY. However, you should probably consult with a CPA or bookkeeper to set up your processes and review your books periodically and at tax time.

However, it’s time to outsource your bookkeeping if:

  1. Your bookkeeping keeps getting pushed to the side
  2. Your business is quickly growing, and you can’t find the time
  3. You are missing tax deadlines
  4. You are having trouble balancing your cash flow
  5. You are unable to reconcile your bank account
  6. You are spending more time on bookkeeping than strategic business goals and operations
  7. You can’t run reports like a Profit or Loss Statement, or you can’t interpret the data
  8. You feel like you are paying too much tax and are missing tax planning opportunities 
  9. You’re facing an audit

Whether you take on your small-business bookkeeping yourself or get help from an expert, understanding the basics will help you better manage your finances. 

You’ll save time chasing receipts, protect yourself from costly errors, and gain valuable insights into your business’s potential.

Bonus: A Small Business Owner’s Bookkeeping Checklist

For a company to succeed, it needs to have an efficient accounting and bookkeeping system in place. 

According to the National Federation of Independent Businesses (NFIB), approximately 30% of small businesses don’t survive their first two years. 

Another 50% don’t survive their first five. 

Don’t allow yours to become another statistic. 

Use this basic bookkeeping checklist as your guide to ensure that your small business continues to operate efficiently for years to come.

Daily Bookkeeping Tasks

  1. Check your online banking.
  2. Be mindful of upcoming deposits and expenses.

Weekly Bookkeeping Tasks

  1. Prepare and send invoices.
  2. Record customer payments.
  3. Review accounts receivable.
  4. Prepare payroll.
  5. Pay any bills due.
  6. Code any newly synced transactions in your software’s bank feed.
  7. File/Upload receipts and invoices.

Monthly Bookkeeping Tasks

  1. Back up any desktop-based software.
  2. Reconcile bank and credit card accounts.
  3. Review Income Statement.
  4. Review Balance Sheet.
  5. Review budget and projected cash flow.
  6. Pay any monthly sales or payroll taxes.

Quarterly Bookkeeping Tasks

  1. Prepare, review, and file quarterly payroll returns.
  2. Compute and pay estimated income taxes.
  3. Review inventory.

Annual Bookkeeping Tasks

  1. Review financial statements for the whole year.
  2. Review and file tax returns.
  3. Prepare and distribute W2s and 1099s.
  4. Prepare, review, and file annual payroll returns.
  5. Analyze inventory.
  6. Prepare a budget for next year.

Let’s Recap

Remember, good bookkeeping is not just a necessity; it’s a superpower that helps us soar to new heights! 

Follow us on Instagram and stay tuned for more helpful tips and tricks for your bookkeeping journey.

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When you join, you will also be able to snag a few of our freebies:

  1. 14 Tax Planning Questions
  2. Cash Flow Crash Course
  3. Bookkeeping Checklist

Happy Bookkeeping,

Tracey

About the Author

Tracey Hrica, EA

Tracey Hrica joined the firm in 1995 as a bookkeeper. In 2012, she earned the designation of Enrolled Agent(EA), which enables her to prepare personal and business tax returns and represent clients before the IRS. To maintain the designation of EA, she must complete yearly continuing education in the areas of personal and business taxation. Working closely with her clients, Tracey’s primary areas of concentration are new client onboarding, client communication, research, and QuickBooks support. As a QuickBooks ProAdvisor, she works closely with clients who rely on QuickBooks for the day to day running of their business. Tracey has expertise in both QuickBooks Desktop and QuickBooks Online.

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