Bookkeeping for every small business is key to achieving a picture of your financial health. Messy records lead to missed expenses, lost invoices and worse profits, resulting in uneducated decisions. This intro guide will cover the basics of bookkeeping and how it differs from accounting. It will also provide handy tips to ensure you are always on top of your finances. 

You might be doing your small business bookkeeping all by yourself, or you are looking out for some professional help. Either way, learning the essence of bookkeeping is one way to stay ahead and ensure successful work. Let’s get started!

What does bookkeeping involve?

Simplified, bookkeeping is a way to describe where business transactions are recorded and organised to show the financial activities for that particular month or period. Further, you also have to keep a record of everything involving invoices, receipts, payments, etc.. You must be sure that each transaction has been properly documented. 

Regular bookkeeping allows businesses to ensure adequate cash flow and have the right information needed for tax obligations and good business decisions. It is an important job, which goes a long way toward keeping the financial health of any small business in compliance.

The key differences between bookkeeping and accounting

Bookkeeping and accounting are pretty closely related, but the roles they play in managing a business’s finances are slightly different.

Bookkeeping is the recording of financial transactions and includes sales, purchases, income, and payments made by an individual or organisation. It is more or less a transactional and administrative function, maintaining robust books so that work becomes easier at the time of reporting.

Accounting, on the other hand, interprets, analyses, and summarises the data provided by bookkeeping. Accountants generate financial statements, provide tax advice, and offer insights for business planning and strategy.

So, where bookkeeping sets the stage and does prep work, accounting provides an expansive perspective of a company’s financial matters.

10 essential bookkeeping tips for small businesses

Separate business and personal finances

Open a business bank account and keep personal and business finances separate. Mixing the two can be problematic because it may cause confusion, inaccurate financial records, or even reporting problems with taxes. It keeps your business transactions separate, making it easier to keep the books, track expenses and prepare for tax time.

Keep track of all expenses

Keeping track of all business expenses is important; no amount or expense is too small. These are, in particular, receipts, bills, or even invoices. As you categorise expenses in a more organised manner, it is easy to automate the tracking of this information using bookkeeping software. This practice ensures detailed financial reports, provides insight into potential tax deductions, and avoids cash flow misapplication.

Stay on top of invoices

Issue your invoices in a timely manner and check their status regularly to avoid problems with cash flow. Ensure that the payment conditions are clear and legal, and re-invoice in case of non-payment. Regular invoicing will mean money coming in promptly from clients and lower the chances of bad debt. 

Reconcile bank statements monthly

By reconciling your bank statements regularly, you can ensure that the transactions you are recording match the actual balance in your bank account. This process facilitates the identification of discrepancies, such as failed transactions or counterfeit activities. Review and reconcile accounts monthly to catch discrepancies earlier, leading to more accurate financial records.

Use bookkeeping software

Accounting software applications can make it easier to manage your financial records. You should use software such as QuickBooks, Xero, and Fresh Books to eliminate human errors, thereby augmenting accuracy and saving time. These also produce real-time reports and are particularly effective for small businesses.

Maintain a regular bookkeeping schedule

Establishing a time to do your books goes hand in hand with being organised! As much as one wants to deny it, consistency is the hallmark of effective bookkeeping. Keep a weekly or bi-weekly period to tidy up and update your books so you never miss out on recording important transactions. Keeping a clear record of your financials is much simpler if you do it regularly throughout the year — not just at tax time. 

Monitor cash flow closely

Cash flow is critical to a small business’s owner’s well-being. Constantly analyse your cash flow reports to see if you have the necessary liquidity for upcoming expenses. Watching the money flow in and out lets you see any shortfalls coming and helps put your budget under control.

Understand your tax obligations

Sales tax, payroll tax, and income taxes are just some of the areas that small businesses need to be careful with when it comes time to pay. Record keeping keeps you ready at tax time. Make sure you manage your taxes, consult with an accountant to be compliant, and also take advantage of the business deductions or credits.

Back up your financial data

Make sure you have regular backups of your records in place, be it cloud-based storage or an external drive to keep a copy. Such best practices help to secure your business from impromptu software crashes, cyber-threat or hardware breakdowns. It only takes seconds, and if your financial information is critical to run the operations of your business, losing it could cripple you.

Seek professional help when needed

Bookkeeping can become more complex as your business grows. If you find yourself falling behind, it may be time to speak with bookkeeping or accounting professionals. They will make sure your books are accurate, assist with tax planning and may provide guidance on how to improve financial processes.

Get specialist bookkeeping advice from Reed & Co Accountants

At Reed & Co Accountants, we understand that bookkeeping can be overwhelming for small business owners. Our team of specialists offer tailored bookkeeping services to help you stay organised and compliant, freeing up your time to focus on growing your business. 

Whether you need assistance with day-to-day record keeping, financial reporting, or tax preparation, we provide expert advice and support to meet your unique needs. With our in-depth knowledge and hands-on approach, you can be confident that your books are in safe hands. Contact Reed & Co Accountants today for professional, reliable bookkeeping services.