Why Small Businesses Need To Master Bookkeeping
All small business aiming to make it big need bookkeeping. However, many find it daunting as bookkeeping can be time consuming and make you lose focus from other core areas of your business.
Businesses from all walks of the industry like small traders, retailers, restaurants, etc. need bookkeeping to survive and make sense of their finances. Many today opt to outsource bookkeeping data entry services to increase the productivity of their small operations.
You might not be a math person, but you must master the art of bookkeeping if you want to succeed in a cut-throat industry. Even a basic understanding of bookkeeping can turn your business lucrative overnight.
What Is Bookkeeping?
Bookkeeping is simply the recording of business transactions. It is the primary method by which businesses can find out whether they are profitable or not. It helps give you a clear picture of your company’s financial report and helps you make important decisions to increase your profits.
Bookkeeping lays the groundwork for further accounting and thus should be taken seriously by a small business.
Now, here are a few tips that will help you navigate the confusing territory of bookkeeping and master it to best benefit your business.
Understand Business Accounts
A business account is a record of all transactions, mostly about sales and payroll. There are five basic types of accounts, and they are as follows.
- Assets: These are cash and resources owned by the business
- Liabilities: These are debts owed by the business
- Revenue: The money earned by the business
- Expenses: The money spent by the business
- Equity: Which is the value that remains with business owners when liabilities are subtracted from assets.
Bookkeeping requires you to record transactions about their respected accounts. Once you understand what all the accounts that constitute bookkeeping are, the process becomes easier.
Set up Your Business Account
Once you understand what your accounts are, the next step is to set them up. You are lucky, as not to long ago transaction had to be recorded into physical books. Now there are automated tools and software that make the job easier. There are three methods to set up your general ledger.
- Make a Spreadsheet
- Buy an accounting software like QuickBooks
- Use a cloud-based bookkeeping software
A spreadsheet will cost you no money, but the process will be complex. On the other hand, software like Quickbooks will do the bookkeeping for you, but you have to pay an upfront fee to use the services.
Decide Which Method You Are Going to Use
There are two bookkeeping methods that you can adapt according to your convenience. They are as follows;
- Single Entry Bookkeeping: In this method, you enter transactions only once. If your customer pays you an amount, you enter that amount in your asset column. It is a simple method that is convenient if you don’t have a lot of inventory and are working from home.
- Double Entry Bookkeeping: In this method, you record two entries for each transaction, one in the Debit (Dr) column and one in the Credit (cr) column. Both debit and credits are recorded in the ledger as journal entries. This method is more challenging than the single entry method but proves to be way more practical in helping you balance your books.
Record All Your Transactions
Record all of your transactions. Make sure all the debit and credit amounts are recorded. If any key records are missing, you will not be able to balance your books. Hence, each debit and credit transaction must be recorded correctly and placed in the right account.
Balance the Books
Remember ‘Assets-Liabilities= Equity’. Hence, it is crucial to correctly balance your books to understand the financial health of your company. When you tally both the debit and credit amounts at the end of the financial quarter, both the totals should match. If the two sides do not match then you have to go back and check all the entries to find errors. Once you have succeeded in balancing the two totals, you can close the books.
Prepare Financial Reports
Once you have balanced your books, it is time to find out what it means. Being able to summarize and then interpret the numbers represented in your books will give you a clearer picture of the financial health of your business. One way to make those interpretations legible is by creating sound financial reports.
- Balance Sheets: A balance sheet shows the assets, liabilities, and equity of business over a single period. It informs you about the current state of your finances.
- Profit and Loss Statement: This income statement breaks down business revenues, costs, and expenses of a business over a period of time.
- Cash Flow Statement: Cash flow statement are similar to P&L statements, they simply don’t carry any non-cash related statement like depreciation
Key to Success:
- Specialize in a type of solution that you will provide or a specific industry that you will serve. Stay as narrow and specific as possible to become highly attractive to a small group of potential customers. Allowing you to present yourself as one of the few experts in the very narrow field
- Over-communicate, Make sure that all interactions with customers and the team are extremely clear. Especially with every party’s expectations of the future and desired results
- Show genuine concern for your client’s needs and pressing issues, build deep relationships with your clients
- Respond fast, always have time to respond to leads and/or client’s requests. Being available when the client needs you is the most important part of customer service
- Be unique and don’t settle for just being “different”
- Price your services based on value, do not charge by the hour or based on effort. Customers do not care about your time or your efforts, they only care about results that you are able to deliver
- Go to as many trade conferences about accounting, bookkeeping, and related technology as possible to learn from your peers. You must be up-to-date with all software technology and industry issues to be able to serve your client with the most modern technology and techniques.
While practicing bookkeeping, try to stick to a schedule. Don’t let bookkeeping be the sole focus of your business. Use potent firewalls and antivirus tools to keep your recorded data secure. If you are new to bookkeeping, hire an expert to do the job for you. Better yet you can always outsource bookkeeping data entry services to boost your productivity.
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