Bookkeeping is the language of business that business owners must know if they aim to set up a successful business. Sadly, it is the part highly neglected in startups to cut costs. Statistics says more than 30% of business fails due to short-in cash, and who is responsible? A poorly maintained accounting book.
This guide will cover everything you need to know about small business bookkeeping.
Table of contents
● What is bookkeeping in startups?
● What are the effective bookkeeping habits you should develop?
● How is bookkeeping differently from accounting?
● Why is bookkeeping important for my business?
● Wrapping up
What is bookkeeping in startups?
Bookkeeping is the first step to fulfilling your accounting needs in the business, which includes tracking, recording, and updating, daily business transactions. Recording transactions means keeping details of your purchases, sales, receipts and payments. It is the record-keeping part of financial accounting.
Among several other bookkeeping methods, single-entry and double-entry bookkeeping systems are the most popular ones.
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What are the effective bookkeeping habits you should develop?
- Fix a time for bookkeeping
When you have scheduled a time for taking essential calls, why not fix a time for bookkeeping? You must set a time to look into your bookkeeping practice every week or month. It will save you time and stress-free at the end of the financial year.
Regular checking in your bookkeeping helps you manage your cash flow and plan for the future.
- Separate business account
Bookkeeping for small business can be challenging when you mix up personal and business funds. As a startup, you might not have a business account in your initial years but get one as early as possible. Separating your business expenses from personal funds keeps your books clean and easy to understand.
You can connect the business bank account with an online small business bookkeeping software for automatic reconciliation.
- Select an accounting method
As bookkeeping is a part of accounting, decide which method you want to use in business. Accrual accounting records income and expenses on the date of invoice generation, but cash accounting records them when money exchanges hands.
However, the cash accounting method is available only under certain conditions.
- Keep records of every transaction
Keep track of every payment and expense made in the business. You can claim tax refunds on business expenses to reduce your overheads. Keeping a record of every transaction helps you find them during tax filing or when you need them.
Don’t misplace your receipts and invoices, as the HMRC may ask for them anytime, especially during tax refund claims and audits.
- Use automation tools for accounts receivable
Accounts receivable refers to the money owed to your business, which means a client didn’t pay you. As a busy startup, you may not always have time to change your plans and ask them to pay you.
However, using online bookkeeping software for small businesses with automation features allows you to set up automatic email reminders to clients on their payment due dates.
- Organise your bank statements and invoices
Organising your bank statements and invoices is good to avoid taking extra time to chase down and sort them while recording transactions. You can keep your purchase invoices and sales invoices in separate files.
- Choose a bookkeeping software
Apart from hiring or outsourcing to professionals, you should also purchase good small business bookkeeping software. It can easily integrate with your MIS or other applications, has a flexible, accessible, user-friendly interface and offers the needed features.
- Produce financial reports monthly
Try to generate your financial reports at least once a month to look after your business finances, opportunities and loopholes in the system. Monthly reports must include a profit and loss statement, a balance sheet, and a cash flow statement.
- Follow deadlines
Look into the deadlines, especially when submitting your self-assessment tax return, VAT return, payroll records, and other documents to HMRC on time.
- Prepare your tax return
Preparing a self-assessment tax return needs attention and time. You need a clean accounting book with organised invoices and receipts and fill out the form carefully. Make sure you don’t avoid paying taxes for the ones you must and carefully look at the eligibility for tax deductions and reliefs.
- Stay compliant with government regulations
Your business must follow government regulations, and efficient business bookkeeping ensures all your systems abide by the country’s rules at different levels.
- Seek professional advice
Not necessarily you must hire an in-house bookkeeper, but outsourcing to a bookkeeping business firm or an online freelancer can save you time and money. Plus, having a professional at your back keeps you confident and spares you time to focus on core business activities.
How is bookkeeping different from accounting?
New entrepreneurs often confuse bookkeeping and accounting as the same thing, but there are significant differences between them.
Bookkeeping is a part of financial accounting related to maintaining records of financial transactions. But accounting is analysing, explaining and conveying such financial transactions. Bookkeepers don’t usually prepare financial statements but provide data to accountants for creating them and assisting owners in making critical decisions.
Why is bookkeeping important for my business?
Bookkeeping in a business ensures information on every transaction is in place. You get a clear image of your business’s financial health which further helps in planning future budget allocations. You save time while filing tax returns and ensure a stress-free investigation.
Bookkeeping helps you analyse and manage your cash flows and keep your investors up-to-date regarding business activities. You can also track your business profitability, fraudulent transactions, cash skimming and other risks in business. Finally, all this information helps you in making crucial business decisions.
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Wrapping up
Bookkeeping is not a legal requirement, but keeping business records is required by law. You must record business and personal financial transactions separately; mixing them can harm your business accounts and lead to costly penalties.
You can perform your bookkeeping tasks only when you have a basic knowledge of bookkeeping jargon and a clear understanding of government regulations in the country. Otherwise, seeking professional advice and creating a solid financial base for your company is better.
