Being a small business owner involves juggling many competing priorities. In addition to managing their core business, small business owners also wear many other hats.
This often includes acting as a CEO, marketing manager, bookkeeper, HR specialist and more.
In this fast-paced environment, bookkeeping tasks may find themselves relegated to the bottom of your to-do list. But, neglecting your bookkeeping responsibilities can have serious consequences…
The Dangers of Letting Your Small Business Bookkeeping Slide
If you don’t keep accurate records of your transactions, income, expenses, cash flow, and profit, you’ll find it increasingly difficult to make well-informed decisions in your business.
If you don’t have accurate information easily at hand, you will struggle to identify growth opportunities, poor-performing inventory, and areas where you can cut costs and improve your efficiency.
There’s also a chance you might have missed tax deductions, or even worse–penalties from the Australian Tax Office (ATO) for incorrect or late payments.
Small Business Bookkeeping Fundamentals
Having an effective bookkeeping system in place is a real asset for any small business. It will help you to maintain compliance with the ATO and it will also ensure you have an accurate overview of your business’s financial health and performance.
#1 Keep personal and business expenses separate
Small business bookkeeping rule number one is ensuring you use separate business bank accounts (and credit cards, if applicable).
Keep your personal finances completely separate.
A clear delineation between your personal and business financial transactions will ensure your business financial records are correct.
Reconciling transactions, managing tax obligations, and planning your cash flow will also be easier if you have a separate business account.
#2 Choose your small business accounting method
As a small business, you can decide between two accounting methods:
- Cash-based accounting
- Accrual-based accounting
How are they different?
The cash-based method records income and expenses when the money physically changes hands. For example, you invoice a client in June, but they don’t pay it until July.
In a cash accounting system, the money is entered as income in July when the money is received. Whereas, an accrual-based accounting method recognises this revenue when it is earned, when the invoice was sent, in July. Accrual accounting is more comprehensive than cash accounting and it is more in line with modern standards of practice in accounting.
#3 Choose accounting software that will meet your needs
Before choosing an accounting software package for your small business, it’s crucial you carefully consider your specific needs and requirements. Consider factors such as the size of your business, how many transactions you’ll typically manage, and any special functions you may need, such as payroll, GST-reporting capabilities, or multiple currencies.
Accounting software, such as Xero and MYOB, is useful for tracking invoice due dates, sending timely reminders for late payments, efficiently recording expenses, and running financial reports to help make decisions in your business.
#4 Record your business transactions correctly
First of all, you’ll need to ensure you have a system in place to accurately categorise your business expenses. Most accounting software packages offer a list of categories in a general ledger as a starting point for small businesses, and you can tailor these to suit your business.
Accurate financial data entry is key to maintaining accurate financial records. When you enter an expense, make sure you assign it to the appropriate expense category. This will help you identify spending patterns and identify areas where your costs can potentially be reduced.
#5 Routinely reconcile financial transactions
Reconciling transactions in your bank statements is an important element of any bookkeeping process. It will help to ensure the accuracy and integrity of your financial records.
Routinely reconciling your business accounts will help you to quickly identify and resolve any discrepancies, such as missing payments, overcharged expenses, incorrect entries, or unauthorised transactions.
#6 Review financial reports regularly
Most bookkeeping software packages offer a range of reports that can help you assess the financial health of your business. This typically includes:
- Profit and loss statement
- Balance sheet
- Cash flow statement
It’s important to review these financial reports regularly because they provide you with valuable insights to help you make informed decisions in your business.
Options for Bookkeeping for Small Businesses
DIY (Do it Yourself)
You don’t need any specific certification to manage your own business’s finances. So, it’s perfectly fine for small business owners to do their own bookkeeping.
Hire a Professional Bookkeeper
As an alternative to DIY bookkeeping, you might consider hiring a qualified bookkeeper to help you. After all, part of being a successful entrepreneur is recognising when you need to delegate tasks to others, whether that is in-house or outsourcing to a professional bookkeeper.
Having a dedicated small business bookkeeper can help you to ensure compliance and avoid costly bookkeeping errors. Professional bookkeepers can help with recording financial data, bank reconciliations, accounts payable, accounts receivable, GST returns, payroll, and financial reporting.
This can help to free up your valuable time so you can focus on other priorities in your business.
What to Budget for a Professional Bookkeeper
While engaging a small business bookkeeper will cost you money, it is a tax-deductible investment in your business. What you should budget for your bookkeeping will depend on the scope of work you need your bookkeeper to do. The costs will also be influenced by their qualifications, expertise, and experience, and whether you need assistance with more specialised bookkeeping tasks, such as payroll.
Take the Next Steps to Improve Your Small Business Bookkeeping…
First Class Accounts offers bookkeeping services specifically for small businesses, including tax and payroll. With more than 100 bookkeepers part of our team across five Australian states, you can be sure your nearest bookkeeper isn’t far away.
Contact First Class Accounts today–we are professional bookkeepers you can rely on.
