How To Do Bookkeeping for Small Business
Who doesn’t love a helpful “how-to”? We appreciate any time someone asks questions surrounding finances or budgeting for business and so on – numbers are our thang! So, specifically, one question us accountants are often asked is how to do bookkeeping for small business. While there isn’t a magical formula or must-have program, there are definitely some key areas that need to be assessed, then addressed. Here, we will share a brief outline of what you simply must monitor and measure when keeping the books for your small business.
As the business owner, you must understand the different types of “accounts” you are responsible for in order to organize your finances.
By organizing finances, you can then measure the success (or failure) of your efforts and reassess as needed to grow and scale. Here are the areas you simply cannot ignore and a basic understanding of what each is in regards to your bookkeeping responsibilities.
Some companies sell products and services that do not collect payment immediately. If that is the case with your business – or an aspect of your business – you will want to track “receivables” or, in other words, money due from customers. Think outstanding invoices and the like. By tracking an Accounts Receivable category, you stay up-to-date with invoices so you have accurate monthly reports and timely payments to keep operations going.
Money in and money out. It’s all part of business. However, we want to know where our money is going. Otherwise, we wonder where it went! Having a category in your books dedicated to money out lets you see what business operations cost and, if relevant, where money is going out that shouldn’t be. You can also avoid paying someone twice, or paying for subscription services you are no longer using. Plus, we recommend paying bills automatically or early payments. Not only will you save time, but oftentimes, you can also receive an early payment discount which is given to businesses who pay ahead.
Cold, hard cash.
Cash is a no-brainer and perhaps one of the more basic accounts to manage. It is, however, often overlooked. A cash book, or petty cash log, is a ledger for keeping track of small cash purchases. Some small businesses such as restaurants find cash books especially useful because these companies tend to need small quantities of easily available supplies to make up for unpredictable shortfalls.
It is inevitable that, at any given time, you will still have product on the shelves. Unsold products are like money sitting on a shelf. They must be carefully accounted for and tracked. We highly recommend regularly conducting counts of inventory to ensure you have accurate stats of what’s on hand. This is just one of the many areas we will provide should you decide to outsource basic bookkeeping to Two Sense Consulting.
The saying goes, “it takes money to make money.” Sure, some businesses can have very little to no overhead but a good majority of business owners have taken loans out to get started. In fact, the folks at Fundera concluded that 43% of small businesses applied for a loan last year, with an average small business bank loan amount at $633,000. If you’ve joined the ranks and borrowed money to buy equipment, vehicles, furniture or other items for your business, this account category helps you accurately track payments and due dates.
For many businesses, payroll expenses can be the biggest cost of all and is much more than just writing checks. Keeping the books accurate with this account category in particular is crucial when it comes to tax time and other government reporting requirements. You definitely want to avoid getting into trouble with the IRS. In fact, we have an entire blog dedicated to that here.
Aside from borrowing money, it also takes spending money to make money! The Purchases Account tracks any materials or finished goods that you buy for your business. We refer to this often as ‘Cost of Goods Sold’ (COGS). Subtracted from your Sales category (below) you can find your company’s gross profit.
Ah, yes, good ol’ sales. The ca-ching of the whole operation and the fruits of your labor! A Sales account tracks all incoming revenue from what you sell. You will always want to keep an accurate record of sales so you can assess where you business is financially at the drop of a hat. You want to be able to make educated business decisions and by knowing Sales, along with the above areas, you can determine your next best steps to meeting – and exceeding – business goals.
The above listed eight areas are critical when you want to know how to do bookkeeping for a small business. The “how” can be up to you as there are different options available for your needs. You can always give us a call for one of two helpful options. You’ll not only get a free consultation, but also you can choose to either outsource it all to us or ask us about our freebie, DIY Accounting! Either way, you will have trusted advice from those of us here at Two Sense Consulting.