Have you been struggling with getting your head around bookkeeping for your small business? This article will give you an overview of what you need to know and will help you steer clear of some common pitfalls.
At its most basic, bookkeeping means tracking incomings and outgoings. This can involve a number of different ledgers and records (e.g. an “accounts receivable” ledger for invoices that haven’t yet been paid).
Modern bookkeeping uses a “double entry” system, which is required when submitting accounts. For every debit entry, a corresponding credit entry must be recorded, and vice versa.
Should You Hire a Bookkeeper?
While it’s possible to perform the bookkeeping for your small business yourself, you’ll find it easiest and most efficient to hire a bookkeeper. It’s worth spending a bit of time learning how to find the right bookkeeper for your small business: that way, you’ll ensure that everything goes smoothly.
What Common Bookkeeping Problems Might Occur?
Small business tends to run on a tight budget, and you may well be handling a whole host of different tasks. If you don’t have a bookkeeper, it’s easy for things to slip through the cracks.
Watch out for problems like:
Not Tracking Sent Invoices: if you don’t pay close attention to whether invoices have been paid, you could face serious cash flow difficulties.
This is where your accounts receivable ledger comes into play. You should be able to see at a glance how much is outstanding … and you should have a clear process in place for chasing up late payments.
Not Paying Your Invoices on Time: it can be tricky to keep on top of business expenses, but if you’re late paying for services or products that you have received, this can cause a whole host of problems.
As well as potentially incurring a late fee (and your supplier’s annoyance), being late with your payments means you might be lulled into a false sense of security by your bank balance: a lot of the money in there maybe already spoken for.
Not Keeping Your Books Up to Date: if your books aren’t up to date, you won’t have any idea about how much money you actually have in your business. The only clue you’ll have is your bank balance (which doesn’t account for money owed to you, or by you).
By updating your books at least weekly — and some small businesses find it easiest to do this daily — you’ll always have an accurate picture of your current financial situation.
Not Spotting and Correcting Errors Promptly: you need a system in place to check for any potential errors in your bookkeeping (like accidentally entering a payment received in the wrong column as an expense).
If you don’t spot errors and correct them promptly, you’ll be working on inaccurate information about your business. If you don’t spot the errors at all, you could end up in serious legal difficulties if you get audited.
What If I Want to Handle Bookkeeping In House?
If you want to take care of bookkeeping in house, then perhaps you have an employee who’s great with figures and who could do an excellent job. You’ll want to ensure they have some bookkeeping training, of course.
Sometimes, it might even be appropriate to help an employee train as an accountant and take the CPA exam. If that sounds like a good option for you and your employee, you’ll want to take a look at this list of CPA exam prep courses to find some appropriate training.
Bookkeeping doesn’t need to take up a lot of your time and attention, but it does need some of it! If you find bookkeeping a chore, though, or if you simply want to free up your valuable time for other things, look at hiring a bookkeeper to handle the books for you.