How to Do the Bookkeeping for a Small Business

Although the reporting requirements for small businesses are more relaxed than larger ones, it’s still crucial for bookkeeping to be done promptly and accurately. Failing to do so can incur fines or cause the business to go under due to mismanagement of cash flow.

We’re pretty sure you didn’t start a business only to trip yourself up with bad financial management, so here’s what you need to know about small business bookkeeping to keep you on track.

What Is Unique about Doing Bookkeeping for a Small Company?

The key difference between small business bookkeeping and large organizations is the volume of business. Small companies just don’t have the level of revenue and activity as their larger counterparts. Therefore, there is less paperwork, invoicing, and financial statements to deal with.

Because of the lesser volume of work, the reporting requirements of small businesses are more relaxed and don’t require as much work. Additionally, bookkeeping for small businesses tends to be centered around the cash basis accounting method, which is simpler and more straightforward.

What Types of Bookkeeping Are Useful for Small Businesses?

A common accounting method known as “cash basis” identifies revenues and expenses when cash is received or paid out. In contrast, accrual accounting records expenses as they are incurred, regardless of when cash is received or paid, and recognizes income when the liability is incurred.

Cash basis accounting is the better and more common option for small business bookkeeping because it is less complex and expensive than accrual accounting. Due to the simplicity of this method, many small businesses choose to forego hiring accountants and sophisticated accounting systems.

What Are Common Mistakes Small Companies Make?

Because of the more casual nature and culture that small businesses tend to have, there are several common mistakes that small businesses tend to make when bookkeeping. Some of these are:

Failing to save receipts for amounts under $100
Not tracking reimbursable expenses
Failing to communicate all financial activity to their bookkeeper
Failing to reconcile statements
Mismanagement of petty cash
Miscategorizing expenses
Trying to do the bookkeeping without a qualified individual

What Are the Responsibilities of a Bookkeeper?

Although a bookkeeper can carry out various financial duties, it is crucial to realize that they are not accountants. They lack the specific knowledge necessary to evaluate your company’s performance and offer suggestions for managing your finances. They are also unqualified to manage and prepare taxes in-depth.

Depending on the size of your business, a bookkeeper will be in charge of some or all of the following:

Recording incoming and outgoing transactions on time
Posting transactions to various accounts
Payment and invoice processing
Conducting daily banking requirements
Ensuring and maintaining compliance
Regular financial reporting
Reconciling accounts
Payroll
Tracking expenses

What Is the Importance of Accurate Bookkeeping?

Accurate bookkeeping is essential for any type of business because:

It ensures you remain compliant and will pass if you become subject to an audit.
Budgeting is easier when you know your cash flow.
If your books are in order, you can make better financial decisions regarding the operations and growth of the business.
It tracks profit to understand your business’s progress and where money is being lost.
It organizes data: bookkeeping for a small business organizes financial data for easy understanding and analysis.
The IRS requires that you keep certain information. To do your taxes accurately, you must know your gross receipts and purchases, your assets, and travel and entertainment expenses.

What Basics Should All Businesses Know about Bookkeeping?

While you may plan to offload all financial duties to a bookkeeper, you should still understand the basics of bookkeeping. This will help you be prepared if a problem arises or if you need to make an important financial decision.

Every business should know how to:

Should Small Businesses Use Bookkeeping Software?

Small business bookkeeping should be taken just as seriously as large business accounting. Therefore, all data must be kept secure as well as accessible. Bookkeeping software is a great solution as it is usually cloud-based, so the data is never lost.

Previously, accounting software was prohibitively expensive for keeping small business books, but in the past decade, several companies have developed software specifically for smaller organizations and have affordable pricing to go with it.

Furthermore, bookkeeping software automates many of the essential tasks, so if you’re not financially minded, accounting software can take a whole load of work off your plate.

What Are Some Tips for Keeping the Books Organized?

Small business books can be kept clean and organized by following a few simple rules:

Always keep your personal and business finances separate
Use a debit or credit card to pay for expenses rather than cash, so you always have a record
Set up separate bank accounts for accounts receivable and accounts payable
Keep all financial records on a digital file
Log all receipts and make digital copies of them
Set reminders for deadlines

What Dates Are Important to Know for Bookkeeping?

If there’s one thing you can’t forget when running a business, it’s filing your taxes on time. Here are the key dates of 2023 to mark on your calendar:

April 18: 1st quarter 2023 estimated tax payment due.
June 15: 2nd quarter 2023 estimated tax payment due.
September 15: 3rd quarter 2023 estimated tax payment due.
October 16: Final extended tax deadline to file individual or corporate tax returns if requested by filing correct forms.
January 15, 2024: 4th quarter 2023 estimated tax payment due.

What Is Unique about Companies That Sell Products/Services?

It doesn’t matter what a company does, whether it sells a service or a product, bookkeeping is essential for all types of business.

Companies that sell products must consider the inventory they carry and the cost of this must be accurately recorded. Additionally, supply, shipping, and storage costs must be included in bookkeeping records. Physical products sold are generally taxable and must be recorded as so.

Services are easier to deal with as you are not shifting any tangible goods. But, items like software, music, and video are considered tangible and could therefore be subject to tax.

How Should Small Businesses Get Started with Bookkeeping?

Bookkeeping for small businesses doesn’t have to be a massive headache. There are plenty of resources out there to help you get started. That is, if you want to do it yourself.

It is not practical or feasible for many business owners to manage the books themselves. Therefore, investing in a bookkeeper is a sound decision – and not as expensive as you may imagine.

What Are Some Bookkeeping Resources?

Although we do recommend hiring a bookkeeper, if you do plan to tackle the books yourself, you need to get to understand what bookkeeping is and how it works. You can do this in a variety of ways:

Type “Bookkeeping” into Amazon. There’s a whole host of “how-to” books that you can get started with

Take a class or two. Investopedia has a great rundown of available online bookkeeping courses here.

Perform a Google search for “Bookkeeping blogs” and you will find an endless supply of information

When Should You Hire a Professional Bookkeeper?

Let’s face it, most business owners don’t have the time to sit down and take a class on bookkeeping, nor do they particularly want to. If that sounds like you, it’s time to get a bookkeeper on board.

You should also get a bookkeeper if you find the following problems occurring:

Where Can You Find a Reputable Bookkeeper?

Hiring a bookkeeper is the fastest and most reliable method to get your books in order. However, traditionally businesses would have had to hire a person full-time. This is often too expensive for small businesses, and many companies simply don’t have the office space to hire someone full-time.

Virtual bookkeepers are a great solution to this problem. They have soared in popularity in recent years because they offer a cost-effective way for small businesses to get the professional services they require.

And where do you find reputable virtual bookkeepers? Online, of course!

What Questions Should You Ask a Potential Bookkeeper?

Searching for any type of service online is not without its pitfalls. Sometimes it’s hard to tell if a professional is really who they say they are and whether or not they will do a good job.

However, you can safeguard yourself against this by asking a number of questions to anyone you’re looking to hire. Here’s what you should ask a potential bookkeeper:

What are your bookkeeping qualifications?
How much experience do you have, and in which industries?
Can you show me some client testimonials?
Give me some examples where you successfully overcame a problem.
What is your preferred working style, and how do you plan to keep me updated?
Which bookkeeping software do you use, and how will you keep my data secure?

You should always scour the internet to find reviews about the individual you are looking to hire. This is easy on freelancing platforms such as Fiverr or Upwork, as you can look at reviews before you hire someone.

If you plan to use an established bookkeeping firm like EvolveCFO. Reviews will be readily available online.

How Much Should Professional Bookkeeping Cost?

Professional bookkeeping doesn’t need to cost the world, and thanks to virtual bookkeeping services, you can now choose a plan that gives you the service you need without paying extra for anything you don’t need. For example, at EvolveCFO, we understand that small businesses have different levels of requirements. So we’ve put three plans together at different price points ranging from $299/mo – $499/mo. That way, a business can pick exactly what it needs at that moment in time. If a business needs to scale up or down its level of service, it can do so without any problem.

How to Get a Quote for Bookkeeping

To get an accurate picture of which price plan you need for your business, you need to look at your business’s bookkeeping requirements and what needs to be done weekly and regularly.

Write down all the required tasks, how much worth of expenses you deal with each month, and how many accounts you have. Then, match this to one of EvolveCFOs’ price plans. If you’re unsure, we’ll gladly help you decide; all you need to do is get in touch.

Bookkeeping doesn’t have to be a bind, especially if you have professionals like EvolveCFO by your side. We’ll help your small business thrive!