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How to do bookkeeping for small business?

accountancy franchise
Sumit Agarwal Sumit Agarwal 24 Apr 2024 Bookkeeping

How to do bookkeeping for small business?

Bookkeeping is an essential task for any small business, as it involves recording and organising every financial transaction that takes place within the business. Proper bookkeeping ensures that you have an accurate record of all the money flowing into and out of your business, providing you with oversight of your business’s finances and a clear picture of your revenue, debts, profit, costs, and overall financial health.

While some small business owners may choose to handle their bookkeeping, others may prefer to hire a bookkeeper or outsource the task to a local accountancy firm. Regardless of which option you choose, it’s crucial to have a system in place for managing your financial transactions and staying up-to-date with tax obligations.

In this blog, we’ll explore the basics of bookkeeping for small businesses, including tips for setting up a manageable bookkeeping process, choosing the right software, and deciding whether to handle basic bookkeeping in-house or outsource to a bookkeeping and payroll provider.

We’ll also guide you on how to record and categorise financial transactions, reconcile bank statements, and prepare financial reports. Following these best practices ensures that your small business’s bookkeeping is accurate, efficient, and compliant with all relevant regulations.

What is bookkeeping?

Bookkeeping is the process of recording, categorising, and organising financial transactions for a business. It involves keeping track of income, expenses, assets, and liabilities to ensure accurate financial records. Bookkeeping is essential for any business, regardless of size, as it helps to monitor financial performance, prepare financial statements, and ensure compliance with financial regulations.

Bookkeeping involves several key activities, including recording financial transactions, categorising expenses, reconciling bank statements, managing accounts payable and receivable, and preparing financial reports. It is an ongoing process that requires attention to detail, accuracy, and organisation.

The basics of bookkeeping for small businesses

In bookkeeping, the goal is to keep track of all financial transactions related to your small business. This is important for many reasons, including staying organised, preparing for tax season, and making informed decisions about the future of your business. Here are the basics of bookkeeping for small businesses:

  1. Record all financial transactions: This includes income, expenses, and any other financial activity related to your business. This can be done using a simple spreadsheet or specialised bookkeeping software.

  2. Categorise transactions: Each transaction should be assigned to a specific category, such as sales, rent, utilities, or marketing. This will help you keep track of where your money is coming from and where it is going.

  3. Keep track of accounts payable and receivable: Accounts payable are the bills you owe, while accounts receivable are the payments you are owed. It's important to keep track of both so you can stay on top of your cash flow.

  4. Reconcile bank statements: Regularly compare your bookkeeping records with your bank statements to ensure they match. This will help you catch any errors or discrepancies.

  5. Prepare financial statements: At the end of each month or quarter, prepare financial statements such as an income statement, balance sheet, and cash flow statement. These will give you a snapshot of your business's financial health and can help you make informed decisions about the future.

Remember, bookkeeping doesn't have to be complicated. By keeping accurate records, categorising transactions, tracking accounts payable and receivable, reconciling bank statements, and preparing financial statements, you can stay on top of your small business's finances and make informed decisions about its future.

Tips to do bookkeeping for small businesses

Bookkeeping is a crucial aspect of managing a small business, as it helps you keep track of your finances and make informed decisions. Here are some point-wise tips on how to do bookkeeping for small businesses:

  1. Set up a bookkeeping system
    To start with, you need to set up a bookkeeping system that fits your business needs. You can choose between manual or digital systems, such as spreadsheets or bookkeeping software. The key is choosing a system you can easily maintain and update regularly.

  2. Choose the right bookkeeping software
    If you decide to go with a digital system, you'll need to choose the right bookkeeping software for your small business. Look for software that is easy to use, has the features you need, and is within your budget.

  3. Create a chart of accounts
    A chart of accounts is a list of all the accounts you'll use to categorise your financial transactions. It includes assets, liabilities, equity, income, and expenses. Creating a chart of accounts will help you stay organised and make it easier to prepare financial statements.

  4. Record all financial transactions
    It's essential to record all financial transactions, including income, expenses, and assets and liabilities. This will help you keep track of your financial position and make it easier to prepare financial statements.

  5. Reconcile bank statements
    Reconciling bank statements is the process of comparing your records with your bank's records to ensure they match. This is an important step in bookkeeping, as it helps you catch any errors or discrepancies.

  6. Track cash flow
    Cash flow is the amount of money flowing in and out of your business. Tracking cash flow is essential for managing your finances and ensuring you have enough money to cover your expenses.

  7. Prepare financial statements
    Preparing financial statements, such as income statements and balance sheets, will help you understand your financial position and make informed decisions. You can use your bookkeeping records to prepare these statements.

  8. Keep personal and business finances separate
    It's important to keep personal and business finances separate to avoid confusion and make it easier to manage your finances. Consider opening a separate bank account for your business.

  9. Review and update your records regularly
    Regularly reviewing and updating your bookkeeping records will help you stay on top of your finances and catch any errors or discrepancies. Set aside time each week or month to review and update your records.

  10. Hire a bookkeeper or outsource bookkeeping
    If you find bookkeeping overwhelming or don't have the time to do it yourself, consider hiring a bookkeeper or outsourcing bookkeeping to a professional service. This can help you save time and ensure your finances are managed correctly.

By following these tips, you can do bookkeeping for your small business effectively and efficiently. Remember, bookkeeping is an ongoing process, and it's essential to stay on top of it to ensure your business's financial success.

Choosing the right bookkeeping software for your small business

When selecting bookkeeping software for your small business, it's crucial to find a solution that fits your needs. Nomi bookkeeping software stands out for its user-friendly interface and comprehensive features, making it an excellent choice for those seeking simplicity and efficiency. With Nomi, you can easily track income and expenses, generate financial reports, and make a easy bookkeeping processes. Its intuitive design makes it accessible for beginners while offering advanced functionalities for more experienced users.

By choosing Nomi bookkeeping software, you can simplify your financial management tasks and focus on growing your business.

Managing accounts payable and receivable for small businesses

Managing accounts payable and receivable is crucial for the financial health of small businesses. Here are four key points with three subpoints each to help you effectively handle this aspect of your business:

Accounts payable management

  • Track invoices: Keep a record of all invoices received from vendors.

  • Set payment terms: Establish clear payment terms to avoid late payments.

  • Regularly reconcile: Match invoices with payments to ensure accuracy.

Accounts receivable management

  • Issue invoices promptly: Send out invoices as soon as goods or services are delivered.

  • Follow up on overdue payments: Monitor outstanding invoices and send reminders.

  • Offer incentives for early payment: Encourage prompt payment with discounts or incentives.

Cash flow monitoring

  • Forecast cash flow: Predict incoming and outgoing cash to plan for any shortfalls.

  • Maintain a cash reserve: Have a buffer for unexpected expenses or slow-paying customers.

  • Review cash flow regularly: Analyse cash flow statements to identify trends and make informed decisions.

Automation and software tools

  • Use accounting software: Implement accounting software to make a easy invoicing and payment processes.

  • Automate payment reminders: Set up automated reminders for overdue invoices.

  • Integrate systems: Connect your accounting software with banking for seamless transactions.

By following these simple guidelines, small businesses can maintain a healthy financial position, improve cash flow management, and build strong relationships with vendors and customers.

By outsourcing your bookkeeping services to dns accountants, you can enjoy peace of mind knowing that your financial records are being managed by experienced professionals. You can also benefit from cost savings, as outsourcing can be more cost-effective than hiring a full-time bookkeeper.

To learn more about how we can help with your bookkeeping needs, contact today at 033 0088 3616, email contact@dnsaccountants.co.uk, or book a free consultation. Our team of experts is ready to help you take your small business to the next level.

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About the author

Sumit Agarwal
Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants