Bookkeeping for Your Small Business

No matter the size of your business, bookkeeping is essential to its growth and future success. Owner-operators of small businesses typically keep a lot of the business details in their heads. Although this approach may seem to have some advantages, those perceived advantages pale in comparison to the disadvantages. Have you setup and formalized the bookkeeping system for your small business?

Small businesses that choose not to formalize their bookkeeping system typically claim they save time and money because they don’t have to learn to use accounting software or worry about losing their data through computer crashes or system security breaches. Unfortunately, this perceived advantage fails to consider the corresponding disadvantages, including:

  • No clear information about the business’ financial health,
  • No ability to trace and document income and expense amounts, and
  • No process of generating useful, timely financial reports.

Even the smallest business needs a formal bookkeeping structure. Even if your business plan concludes that accounting software is not initially required, it should identify how the business will record its transactions, and how the transactions will be accumulated to create useful financial reports. At a minimum a small business bookkeeping system should include:

  • Plan or budget for major capital expenses; ideally, a “rolling” 3 to 5 year budget that allows you to estimate when major purchases will need to occur. By continually planning for the next major purchase, you can avoid taking money out of the business during profitable periods that is needed to replace equipment or expand the business in later periods.
  • Method of tracking expenses. Use a business credit card that categorizes expenses for you or create a spreadsheet that lists all payments by type (e.g., check, cash, debit card or credit card) and category.
  • Written records of meetings and events. Jot down your business trips, lunches, meetings and other events you attend, and list any cash payments you incur in an electronic or paper day planner or travel log.
  • Method of tracking bank deposits. Use a receipt journal or create a spreadsheet to separate deposits of revenue from sales from deposits of loan proceeds or owner cash investments.
  • Tax payment system. If your business hired employees, it is essential that you know what, when and where you need to pay the payroll taxes; make sure your day planner includes all of the tax payment due dates.
  • Collection procedures. If your business bills customers or extends payment terms, develop a timeline of when invoices and past due notices will be sent and when collection calls will be made.

Once you formalize how your financial transactions will be accumulated, you are able to monitor, budget and plan for your financial health because you have accurate financial data at your fingertips.

If you need help setting up a basic bookkeeping system for your small business, contact Flexible Accounting Services of the Triangle today and let us assist you in developing a bookkeeping system that is tailored to your individual situation and your specific industry.