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How to do Bookkeeping for Small Business: A Step-by-Step Guide

The process of documenting, arranging, and analysing financial transactions is known as bookkeeping for small firms. In order to keep correct financial records, it entails recording income, expenses, purchases, and sales. For small businesses, bookkeeping is vital in a number of important ways. It’s essential for managing working capital and tracking cash flow. ​Small Business bookkeeping is necessary for financial clarity, compliance and correct decision making.

Nonetheless, small enterprises face several obstacles such as complex tax laws, little knowledge and resources, changing accounting standards, and more. With a focus on important information and frequent traps to avoid, this site seeks to provide thorough insights into efficient bookkeeping methods for small businesses.

What is meant by Small Business Bookkeeping?

The ability to operate efficiently depends on bookkeeping accuracy and punctuality. Accounting is the process of analysing a company’s data to determine its financial condition and make decisions about how to manage its finances. In contrast, small business bookkeeping entails the daily recording and reporting of an organisation’s financial information.

Bookkeeping involves variety of activities, including:

∙Maintaining ledgers for purchases and sales to monitor revenue and costs
∙Tracking the movement of funds
∙Payment to vendors should be included for bookkeeping record
∙Following up with clients to collect payments
∙Making sure the company pays the appropriate amount of taxes on time and completely.
∙Recovering taxes on company expenditures
∙Handling employee payroll, including submitting and paying PAYE to HMRC

Why do Small Business Bookkeeping is necessary?

∙It enables the company to monitor amounts owing to vendors and clients, comprehend its cash position and cash flow, and assess its overall financial performance.
∙It guarantees that the company doesn’t overlook other required costs, such business rates, or incur late fees or penalties from HMRC.
∙It provides the company with the documentation and data required to get bank loans, credit from suppliers, and grants from government agencies.
∙It enables appropriate planning for the company. How can you make the crucial decisions that will define your company’s long-term success if you are unaware of your financial situation?
∙It provides the information your company needs to grow, acquire assets, recruit additional employees, and buy out other companies.

Manage Small Business Bookkeeping in 5 Easy Steps

Before directly starting small business bookkeeping procedure select the appropriate bookkeeping technique and matching accounting technique. Depending on the intricacy of your company, you can choose between the double-entry and single-entry bookkeeping techniques.

Because single-entry bookkeeping is easier to use, it is typically employed by companies with less than ten employees, no intentions to expand, and no requirement for detailed financial reporting. On the other hand, companies that require more detailed reporting or wish to grow typically employ the double-entry bookkeeping approach.

Following are the steps to manage bookkeeping

Step 1 Arrange Financial Documents: Payroll records, tax returns, and any other sales or purchases you make should all be kept on file since the information in these papers will be needed for the subsequent phases in the small business bookkeeping process. For this reason, small business bookkeeping is must.
P.S. Keep your personal and business funds distinct to maintain discipline and facilitate recording. ​

Accounting software like might be helpful because recording can take a while, especially if you’ve been putting it off. By importing your transactions from your business bank account into our accounting software, you can cut down on the amount of manual labor you need to perform and the possibility of
human error.

Documents must have following details:

∙The transaction dates
∙Purchaser and vendor
∙Transaction’s amount
∙ Goods or services delivered

Step 2 Differentiate Business Transactions: This is the most important step in small business bookkeeping process.
The source documents for your company must be arranged according to one of the following categories: assets, liabilities, equity, revenue, or costs. ​

Let’s review and provide more clarification on each category’s definition.

Assets: Any asset that your business owns both tangible and intangible form is considered as an asset. Intellectual property rights or patents comes under intangible asset whereas, tangible asset includes cash, machinery and inventories. Asset includes everything from which you can gain after a long term.

Liabilities: Any money you owe that will eventually leave your company and be paid to another party is referred to be a liability. For instance, since you will eventually have to repay the loan, it would go under liabilities. Payment terms for a car or piece of equipment you bought, money owed on credit cards, and sums owed to vendors all count.

Equity: Any funds or investments (such as machinery and real estate) received by the company’s owner that is, most likely you! fall under equity. By investing your own funds in your company, for instance, you would be contributing “equity” to it. It also works the other way around: equity is impacted if you take money out of your company to invest elsewhere.

Step 3 Reconcile business transactions: Further step, is to reconcile your business transactions, which entails verifying your bank statements with your business books or bookkeeping software to ensure that all the information matches and that no transaction has been counted more than once. Stated differently, you are reviewing your work twice.

First, make sure that your company’s beginning balances the total amount of money it possesses at the start of an accounting period is displayed in your business. Ensure your bank statements and your books are identical. Next, go over each transaction individually. Make careful to record any discrepancies and investigate the causes so you can fix them.

Step 4 Prepare financial statements: Now that your records are in order, you may utilise this information to draft crucial financial documents that will give you valuable insights into the state of your company, such as:

Balance Sheet: The balance sheet is quick overview of your company’s position. Based on the assets, debts, liabilities and equity you can evaluate the performance of company for the specific year. On the left side of the page is a list of your assets and cash is always listed first followed by other assets which can be easily converted to cash.

Income Statement: Your income statement, often called a profit and loss statement, is something you should focus on closely. It is required at tax time and aids in your understanding of the kinds of revenue and expenses that affect your net income, or your bottom line. ​ Incorporate all of the revenue your company brought in during that time frame before creating a profit and loss statement.

Cash Flow Statement: It is a report that outlines the flow of money into and out of a company during a specific period. It tells you if your business is developing steadily in terms of wealth or if you might soon find it hard to keep afloat.

The cash flow statement is divided into three sections: ​

Operating cash: Funds coming in or going out of your company as a result of regular business activities, such as paying a contractor or selling a product.

Cash from financing: the amount of money you have made or lost from borrowing money or finding investors for your company.

Investment cash: The money your company has made or lost by making long-term asset investments (like equipment, for example)

Step 5 Review your financial statements: It’s time for the good stuff now. Now that you have prepared proper financial statements it’s the time to analyse it. Thorough analysing can give you important information about the state of your company. So, you can take a wiser decision of where improvements are needed. Just a quick reminder, since every company is different it’s always wise to consult with an expert before beginning any new venture to ensure you’re making the right decisions.

Options for Small Business Bookkeeping

Small business owners generally don’t need to be expert to manage bookkeeping task. To achieve more precise spending tracking, there are numerous approaches to divide up bookkeeping duties and make use of cutting-edge software and small business accounting systems.

Obviously, small business bookkeeping can always be done in-house. It’s best to adhere to a regular spending monitoring plan if your company decides to handle this duty internally. Establishing a bookkeeping practice helps you avoid inadvertently overlooking crucial accounting procedures.

Bookkeeping Software Platforms: Accounting balance is now easier than ever thanks to modern technology and business accounting software. It can be revolutionary to use a software like FreshBooks, which is made exclusively for small business bookkeeping. FreshBooks offers mobile, safe, and adaptable bookkeeping software alternatives that make managing a number of crucial chores simple, including:

  • Small business bookkeeping assist you to monitor business spending
  • continuous monitoring of the accounts receivable and payable
  • overseeing financial reporting for a predetermined amount of time
  • Creating and forwarding bills to clients
  • monitoring incoming cash
  • Double-entry accounting is used to guarantee accuracy and compliance.

Outsourcing External Consultants: Small Business bookkeeping can be handled without establishing own accounting and bookkeeping department. To handle, monitor, and report on financial activity, there are qualified bookkeepers and accountants are available through outsourcing.

Remember that you, the business owner, are still partially responsible for the team members you hire from other sources. For example, even if your company offers services, a bookkeeper could still require you to send receipts, approve vendor payments, supply information for customer billing, or grant access to an online accounting system.

Do I need professional bookkeeper?

Reducing expenses is essential for business owners to increase profitability. And in an attempt to save money, you could be inclined to do your bookkeeping internally rather than outsourcing. But are you able to achieve this? ​

The process of small business bookkeeping can be challenging and time-consuming. However, it is manageable on your own, particularly if your company is tiny and doesn’t handle many complicated financial operations. But learning bookkeeping will take time, and you might have to pay for software. While it is possible to handle bookkeeping in-house, most companies opt to outsource this task.

Small firms, who might lack the time or money to effectively and thoroughly maintain their records, should take particular note of this. By taking assistance of CoxHinkins to handle your small business bookkeeping, you’ll be able to concentrate on managing your business on a daily basis. ​

A qualified accountant and bookkeeper can capture your data, analyse it, and offer recommendations that will boost the efficiency of your company.

Why do Outsource Small Business Bookkeeping?

The owner of a small business often handles the bookkeeping for the company, but given their worth to the enterprise, this might not be the most efficient use of their time. Rather than having senior management spend time tracking every transaction, it might be more cost-effective to engage a bookkeeper or contract out the bookkeeping to a specialised firm. In other situations, hiring a bookkeeper or contracting out the work is the only sensible option because the company owners do not possess the necessary abilities to handle the books.

How CoxHinkins can Assist for Small Business Bookkeeping?

Bookkeeping is one of the most crucial jobs that a business owner needs to maintain regulary. Producing an accurate record of financial actions that impact every aspect of the business, including payroll, equity, profit, and more, is practically impossible without it.

Thankfully, small business bookkeeping doesn’t have to be difficult. By utilising practical tools and technology, there are numerous efficient ways to handle small business bookkeeping duties internally or externally.

Sometimes keeping track of a small business’s books might be challenging or time-consuming, things can get worse when money is short. CoxHinkins has the greatest answers to the everyday financial issues that many SMEs in the UK have. We offer the financial assistance to keep your company expanding. Freely reach to us with your requirements or any queries we will surely try to solve them quickly.  

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