How to do bookkeeping for small businesses: A step-by-step guide

Startup bookkeeping is the often-overlooked foundation upon which sustainable growth is built. It’s the key to unlocking valuable insights into your business’s performance, making informed decisions, and attracting potential investors. This comprehensive guide will walk you through the essentials of startup bookkeeping, providing practical advice and actionable steps to establish a robust financial system. As you follow these accounting best practices for small businesses, you’ll be better able to understand where your money is coming from and where it’s going. As you develop and refine your accounting strategies for small business over time, you will be able to make better financial decisions and keep your company in the black.

Why does a small business need a bookkeeper?

Regularly assess your business expenses to find areas where you can cut costs — such as products or services you no longer use. While it’s possible to learn bookkeeping basics on your own, there may be situations when seeking professional help is advisable. Complex financial issues, tax planning, and ensuring compliance with regulations are areas where the expertise of a bookkeeper or accountant can be invaluable. Develop a system for organizing and storing receipts and invoices related to your business transactions.

Not Tracking Small Expenses

A single-entry or Accounting For Architects cash-based system might be enough if you’re starting small and only dealing with cash. Cash comes in from sales, and cash goes out for rent payments or inventory purchases. To avoid this, create a budget that accounts for your estimated tax liability and set aside funds each month. Work with a tax professional to determine your projected tax obligations and develop a plan to meet them. Metrobi provides you with a competitive driver pool, a dedicated operations manager, and included delivery management software.

What is Bookkeeping and Why is it Crucial for Startups?

• This will protect your sensitive financial data from unauthorized access or tampering.
• The financial statements which include the income statement, statement of changes in equity, balance sheet, statement of cash flow and notes are the end products of the accounting system.
• If the ratio of income to debt is small, you’re operating with a narrow profit margin.
• The entry system you choose impacts how you manage your finances and how your bookkeeping processes will work.
• For LLCs or corporations, having a different bank account is important because a separate account for personal finances helps with filing taxes.
• When hiring external team members, keep in mind that some of the responsibility still falls to you as the proprietor.

Schedule your bookkeeping tasks and activities into smaller tasks and complete them over the course of the week. Use tools to help you set a budget and manage your assets to better oversee your operational costs. The important decision to make is which type of bookkeeper your business needs. If you’d prefer to meet with the service provider in person and not rely on online apps, then local bookkeepers are a better option for you.

Overall, accounting software is one of the best ways for small businesses to make their accounting process more efficient, flexible, and simple. Early on, cash accounting might suffice, but as you scale, accrual accounting often becomes necessary for a more comprehensive view of your finances. Accrual accounting provides a more accurate picture of your company’s financial health, especially if you have accounts receivable or payable.

Business accounting software and modern technology make it easier than ever to balance the books. A platform like FreshBooks, specifically designed for small business owners, can be transformational. Regularly checking your cash flow—the money coming in and out—is essential.

This external viewpoint helps you avoid costly mistakes and achieve your goals. Sharing this information with your provider will facilitate understanding and adaptation. One essential step in safeguarding your data is implementing confidentiality agreements.

Depending on the scope of your business, you may find it beneficial to hire an employee to manage your accounting and bookkeeping. However, accounting is something that many small business owners are able to handle on their own—particularly when they follow key small business accounting best practices. FreshBooks is one of the most highly rated and straightforward programs for accurate accounting records, professional bookkeeper services, and more. Having a solid overview of your bookkeeping and accounting reports gives you a good enough start for cash flow projections for the following months.

Prepare financial reports

Quick note—every business is unique, so before you get started, it’s always best to speak with a professional who can help you decide what’s best for your business. Cash is always listed first, followed by the rest of your assets, based on how quickly each asset can be converted into cash. The more often you reconcile, the faster you’ll catch any overlooked transactions. We suggest turning reconciliation into a habit and doing it at least monthly to prevent the work from piling up and becoming overwhelming.

One of the biggest hurdles is the time commitment required to learn bookkeeping practices and maintain accurate records. As a small business owner, your time is already spread thin, and adding bookkeeping to your list of responsibilities can be overwhelming. Many small business owners make the mistake of not setting aside money for taxes throughout the year. This can lead to a significant financial burden come tax time and may result in penalties and interest charges. Accountants provide a higher level of financial analysis and planning. They may use the financial data bookkeepers generate to advise business owners on tax planning and budgeting.

Understanding helps identify shortfalls, discrepancies, and bookkeeping and payroll services other issues that are important to catch early. It’s important to understand the trajectories and trends so you can learn how to make better-informed business decisions in the future. In fact, it’s one of the best things you can do for your small business. When you automate bookkeeping tasks, you’ll have more time to dedicate to actually growing your company.

It lets you know how you’re doing with cash flow and how your business is doing overall. Staying on top of your bookkeeping is important so that you don’t have unexpected realizations about account balances and expenses. Forbes Advisor has put together this guide to help you understand the basics of small business bookkeeping. Even with automation, keeping bookkeeping in-house can become a bottleneck as your startup expands. Outsourcing your bookkeeping can be a cost-effective and efficient solution. A remote bookkeeping team handles the day-to-day tasks, freeing up your time to focus on growth.