Bookkeeping can seem a tedious task — something that keeps you from doing the real work at hand. But without bookkeeping you can’t have financial insight into your business and the peace of mind knowing how your business is doing. Bookkeeping can also help in other critical ways:
- Filing your taxes – keeping your books in order can ensure you don’t miss out on any deductions and increasing your tax return.
- Looking for a business loan – lenders and investors are more likely to provide financing if they can see the company’s currently financial state.
- Catching banking errors quickly – catching any errors when they happen makes it much easier to reconcile than waiting for months to address the issue.
- Shows you where your money is going – while you can always see your bottom line, reviewing the ups and downs in your account can tell you about sales, costs and how the business is doing overall.
So, whether you are a startup or an established business, we commend you look into setting up your bookkeeping system. Our 10 steps will help guide you through the process.
You can always schedule time to talk with a Yield Representative to find out more.
separate personal expenses from business expenses
From day one, you need to run like a business — both to track your business finances and to protect your personal assets.
This can easily be done in two quick actions:
- Open a business bank account. Having a dedicated account in place from the beginning and using it to document all of your business transactions, is It will make it easier at tax time to write off all legitimate business expenses.
- Get a company credit card. This follows the same general logic as having a separate bank account. So, never use your personal credit card for business expenses.
If you have already started your business and haven’t done these two things, we recommend you set them up quickly. This protects you personally and makes your company more attractive to future investors or buyers.
set up a system
Bookkeeping use two main methods: single-entry and double entry. There’s no right or wrong, you just need to pick the system that’s right for your business and use it consistently.
If your bookkeeping is straightforward, single-entry might work for you. Entries are recorded one time, as either an input or output. Businesses which handle their own bookkeeping typically use this approach.
While double entry is more complex it is also more robust. All transactions are entered into a journal and then into the ledger as both a debit and a credit. While using the double-entry method is complicated at first, it will give you more accurate books overall. It’s like double-checking your answers before you hand in a test. But you may need the help of a trained bookkeeper to get started.
choose an accounting system
Will it be cash or accrual? Just decide before you start your books.
If you’re using cash accounting, you only record transactions when money has been exchanged. So, if you billed a customer today, you don’t record the transaction until the customer pays you.
Using the accrual accounting method, you record the income when you bill the customer. At the end of the year, you’ve recorded all the income you earned during that year, even if you haven’t collected it yet. This works the same way for deductions. You deduct them when you’re billed, not when you pay. If you are going to offer your customers credit or if you are going to request credit from your suppliers, then you have to use an accrual accounting system.
It’s important to understand that potential investors or buyers will want to see your books on an accrual basis. Accrual allows for consistency in reporting versus spikes you see on a cash basis.
set up a chart of accounts
Your chart of accounts will depend on your business and industry. Generally, transactions fall into five account types — assets, liabilities, equity, revenue, and expenses. Individual line items are then broken down into subcategories called accounts.
How you categorize will depend on your bookkeeping solution — are you doing it yourself, are you using a bookkeeper, are you using an online system, etc.
Since a chart of accounts is customized to your industry it is an evolving process and should be continually updated.
set up a system of checks and balances
Checks and balances serve two main purposes for a business. First, they allow a business owner to verify his or her own work ensuring your company doesn’t look like it’s in the black when it’s actually in the red. Second, checks and balances keep employees honest. Checks and balances include things such as built-in redundancies and segregation of duties,
It’s especially important that no single employee have access to your company’s checking account. As an example, if one person is responsible for paying invoices, another person should responsible for reviewing them, for example. This reduces any temptation an employee may have.
Many people use outsourced bookkeeping services as a means for checks and balances.
prioritize your reports
There are three key reports a business of any size needs to keep track of:
- Income statement: Also known as a profit and loss statement, the income statement gives you a quick view on how your business has been performing over a specific period of time by comparing revenue to expenses.
- Balance sheet: Similar to the income statement, the balance sheet provides insight to your company’s financial health. It lists all of your assets, liabilities, and equity during the period you select to show you where you
- Cash flow statement: The cash flow statement measures the rate at which cash is coming in versus the rate at which it’s going out. This statement factors in the total amount of money that your business has invested to that point — equipment purchases, inventory, etc. This report is the truest indicator of your financial health.
Small businesses using an online or cloud-based software can track these and any other key performance indicators (KPIs) they feel important. Identifying and tracking a company’s KPIs can help gauge the company’s overall financial health and identify areas of concern and of opportunity. This helps executives identify areas which may need help and areas for growth — ensuring overall business growth.
sharpen your forecasting skills
Budget forecasting has always been a necessity in business. What’s different today is the sophisticated reporting software available. This software allows you to start with a more accurate budget forecast — and then update it as needed based on real-time data.
Combine this with tracking your KPIs you are in a better position to move your business forward. For example, understanding and tracking that sales always drop off in the last week of the month allows you to adjust your forecast (and allocate your resources) accordingly.
A business which tracks its finances while also observing economic and industry trends is better positioned to take advantage of opportunities as they arise — or take a more conservative approach as conditions demand.
stick to a schedule
Bookkeeping tasks can be broken into daily, weekly, monthly, quarterly and yearly activities. Here is a quick breakdown of the tasks and when they should be done:
- Daily tasks: Invoicing, bank balances and deposits is should be done daily, especially in businesses that have a large number of cash transactions each day. Delaying any of these activities can increase the chance for errors which could interrupt cash flow. When you update the general ledger daily, you’ll have a detailed financial history in place in the event of an audit. If you are using an online system or have data in the cloud it is vital to back up your data each day.
- Weekly tasks: Running a weekly report confirms that all daily reports have been error-free and that your bank statements are accurate. It also highlights any accounts receivable or payable that are overdue. This can also serve as a reminder to run your payroll.
- Monthly tasks: The end of each month is when you need to reconcile your accounts and verify your balances. It is also a good time to run reports that can provide insight on whether your margins are in line with your
- Quarterly tasks: Most businesses must pay a variety of quarterly taxes, including sales and payroll taxes. To avoid penalties and possibly an audit, it’s important to meet these deadlines. This can also serve as a reminder to review benefit and insurance plans, and, if you move a lot of stock, to take inventory.
- Yearly tasks: If you’ve completed all your tasks throughout the year, then closing the books at the end of the year should be simple. Most businesses also organize tax documents and review budget projections. Yearly. If you have outsourced and are working with an accountant or bookkeeping services provider, make sure to meet with them right yearly — not just at tax
store your documents
Organizing and storing your documents is critical. At tax time, the burden is on you to justify all expenses claimed. With the IRS now accepting digital records, many businesses are moving to online systems and storing data in the cloud. If you are uncertain about moving all your business data online, you are not alone. But with recent advancements the cloud is currently the best place for your data. It’s provides better security and also maintains the integrity of your files — no more unreadable receipts.
Another big advantage is the ability to share secure files — enabling you and employees to work remotely or more easily working with an outsourced bookkeeper. The best advantage is that you are able to track your books in real time.
look to outsource
If you are a small-business owner, you are probably used to doing everything yourself. Spending money to outsource a task is not something you usually do, but there are many advantages to getting help with your bookkeeping. The first and most important is that outsourcing frees up your time and your employees’ time to continue to grow the business. Other advantages include:
- Having a scalable solution which can grow as your business
- Saving money by not bringing a full-time bookkeeper on staff who may not be fully utilized.
- Gaining better access to reports and insights on how your business is operating in real
- Avoiding mistakes that can threaten success or bring unwanted attention from the
Unless you’re specially trained in accounting principles, bookkeeping can be a challenging task. So, consider getting help — whether by hiring a bookkeeper, outsourcing to an accounting service, or using accounting software.
Yield Bookkeeping Services provides full charge bookkeeping for small businesses in the DC Metro Area and beyond. Services include bill payment and invoicing, reconciliation, and providing financial statements—we do as little or as much as you need. You will save time and money with Yield’s fully customizable services. We have years of experience with QuickBooks and are QuickBooks Pro-Advisors. Whether you are a mom-and-pop shop or a small business looking to start up in any industries, we can be your small business accounting department. We pride ourselves on being responsive and attentive to our clients.
If you are considering outsourcing your bookkeeping or have question, give us a call or email us for a free consultation.