Bookkeeping Basics

Bookkeeping Basics for Small Business Owners

Link to the YouTube video, which describes what bookkeeping is, why it matters, and the seven steps to accomplish it successfully:

  • Bookkeeping Definition: “The process of tracking all of your company’s financial transactions so you can see exactly where your business is spending money, where your revenue is coming from, and which tax deducations you’ll be able to claim.”
  • Bookkeeping matters because:
    1. Bookkeeping helps you catch more tax deductions.
    2. Bookkeeping can help you get a business loan.
      • Potential creditors will need financial statements (IE, something that shows expenses and revenue like an income statement)
    3. Bookkeeping helps you catch financial mistakes.
    4. Bookkeeping gives you a clear picture of where your money is going.
  • Steps to Bookkeeping:
    1. Separate your business and personal finances - especially important for C-corps
    2. Choose between single- and double-entry accounting
      • Simple sole proprietors can potentially use single-entry, everyone else should use double-entry
    3. Choose between cash and accrual based accounting
      • If you manage large assets or investments, you should use accrual
    4. Choose a bookkeeping system
      • Manually using Excel or Accounting software, like QuickBooks, Xero or Wave
    5. Categorize Transactions
      • Simple examples: office supplies versus meals
    6. Organize and store documents - two important rules:
      1. If the expense is over $75, you need records to prove the expense.
      2. You should keep every receipt and record for three years (IRS is fine with digital records).
    7. Make it a habit
      • At least once per month

Top 8 Bookkeeping Tips to Simplify Small Business Finances

Link to the YouTube video, which outlines several tips to speed up the bookkeeping process:

  1. Make bookkeeping part of your routine
    • Block an hour per week on your calendar to do routine tasks:
      1. Check on invoices and record payments
      2. Review and pay expenses and invoices
      3. Balance the business checking account
      4. Categorize expenses and incoming payments
      5. Record and file all receipts and documents
      6. Compile and review your financial statements
  2. Separate personal and business finances
    • Use separate bank accounts
    • Withdraw a salary or “Owners draw” to remove money from the business
  3. Document everything
    • The IRS can audit you for up to six years
    • Develop a storage system for receipts and invoices, take notes on transactions, etc
    • Record and categorize transactions each week during your weekly bookkeeping session
  4. Monitor accounts receivable
    • Send invoices
    • Clear paid invoices
    • Record and track payments
    • Note cash payments to ensure a clear document trail
    • Follow up on any unpaid invoices
  5. Keep track of cash payments
    • Cash needs extra attention since there’s no automatic documentation
    • Routinely corss-check receipts and cash flow during your weekly bookkeeping session
  6. Consistently review financial reports
    • When you update transactions every week, you can pull reliable financial documents at any time
    • Check income statements weekly
  7. Get automated
    • With bank apps and bookkeeping software, you can skip most of the straight data entry required for bookkeeping
  8. Let someone else handle it
    • Outsource the tasks you don’t have time for