“Doing the books” is not something that comes naturally to most small business owners. However, it is one of those critical tasks that can make or break your business in the long run. If you don’t already have a robust system in place for tracking your everyday financials, then keep reading to learn the basics of bookkeeping services for small businesses:
Step 1: Choose a Bookkeeping Method
The single- and double-entry methods are the most commonly used bookkeeping methods with the former being ideal for a business that has a very simple structure and a low volume of activity.
Most business owners who use single-entry bookkeeping will record money as it comes in and out of the business in a simple spreadsheet, with a single entry for each transaction. However, it’s important to note that this method does not allow you to anticipate your cash flow needs as it does not track accounts like inventory, accounts payable or accounts receivable.
Step 2: Properly Categorize Transactions
Recording transactions in the appropriate account is one of the most fundamental principles for small businesses who use the double-entry method described above.
There are five account types:
1. Assets are resources owned by your business that can be measured and have value. Examples include cash, accounts receivables, inventory, land and equipment. Assets also include prepaid rent.
2. Think of Liabilities as the obligations of your business — amounts you owe to creditors. Liabilities usually have the word “payable” in their accounting entry. Some examples are: notes payable, accounts payable, interest payables and salary payable.
3. Equity is what is left over when you subtract your liabilities from your assets. In other words, rearranging the Balance Sheet equation* as follows:
Step 3: Track Accounts Receivable
More than likely, your business does not always collect payment the very instant you deliver a product or service to a customer. And without a strong accounts receivable system, you may run into cash flow problems very quickly. The accounts receivables management process must include:
• An efficient invoicing platform that allows you to bill customers quickly; and
• A robust collections system to follow up with late paying clients.
Step 4: Manage Accounts Payables
If you manage a large volume of bills and vendors, then you need to build an accounts payable platform to track your cash outflows. This is where virtual bookkeeping services come in handy to ensure your bills are paid on time and that you maintain good vendor relationships.
Step 5: Reconcile Your Accounts
Whether you use a bookkeeping program like Quickbooks, an Excel spreadsheet or just a good old fashioned ledger book, the ultimate goal of bookkeeping is to reconcile a trial balance, which means the final total of debits and credits must match.
Next Steps: Consider Outsourcing Your Small Business Bookkeeping Needs
For some business owners, keeping up with the steps described above might sound like a fun challenge; but for most, it sounds like a nightmare. If you fall into the latter category, the good news is that the team of experts at Remote Quality Bookkeeping can take these small business bookkeeping tasks off your plate so you can focus on forging a lasting competitive advantage in your industry.
Contact us here, Get Bookkeeping Services for small business with Account-Consultant on affordable pricing.