For many small business owners, bookkeeping is one of the scariest parts of running a business. Many people feel confident in providing the product or service they have built their business around but feel less secure when it comes to crunching numbers.
Even those who hate math recognize that bookkeeping is too critical to ignore. A healthy business requires good record keeping and regular updates on how much money is coming in and how much is going out. To get you started, here is a primer on bookkeeping for beginners.
What is Bookkeeping?
Bookkeeping is, simply put, any system that tracks the finances of a business. It should include records of how much money is coming in and going out.
Bookkeeping allows you to keep an eye on the overall finances of your business. Good records show you which parts of your business are bleeding money, and which are bringing the most money in.
Solid bookkeeping is also a lifesaver when it is time to file your taxes. If you keep up with your books year-round, you won’t have any surprises when filing your taxes. You will also have your receipts ready to justify business expenses and deductions.
How to Track Expenses
Tracking expenses shows you how much money is leaving your business. This information may highlight which areas cost you the most money and may prompt you to change your habits or look for a new supplier.
You should keep and file paperwork and receipts for the following:
- Bank statements
- Financial statements
- Credit card statements
- Tax returns
- Receipts for business expenses
- Bills for office expenses such as utilities, cell phones, and the internet
- Canceled checks that show proof of payment
For each expense, you should have a record that shows:
- Name of the payee
- Amount paid
- Proof of payment
- Description of expense
While it is important to keep track of all your business expenses, be sure to keep detailed records for gift, entertainment, transportation, and travel expenses. The Internal Revenue Service has specific policies about when these expenses can be deducted and how to report them on your tax return. These records can help you justify your expenses when you file your taxes.
How to Track Income
Tracking the money your business brings in is just as important as tracking what goes out. One good approach is to break down your income into separate revenue streams.
Separately tracking various types of revenue can help you see which parts of your business bring in the most money and which do not. This information can help you change the way you run your business. You may choose to eliminate income streams that perform poorly or change tactics to improve performance in those areas.
For example, let’s say you run a small business that sells beauty products. You could track how much money you bring in through in-home parties, direct sales, and online orders. The information you compile through tracking might lead you to redirect your focus.
There are a few different options when it comes to bookkeeping methods.
A simple spreadsheet is the most basic approach and a great place for beginners to start. One downside is that if your business has many different income streams or expense categories, what started as a simple spreadsheet can quickly become unwieldy and difficult to use.
Digital accounting software programs are another good option. Many are user-friendly, so you don’t have to be a bookkeeping expert to use them.
No matter which method you choose, make sure to stay on top of your bookkeeping. Keep track of all your records and receipts, then dedicate one day a week to inputting the data into your spreadsheet or accounting software. When you let things pile up, bookkeeping can become overwhelming.
If you still have no idea how to go about bookkeeping for your small business, why not hand it over to someone who does? The accounting professionals at Expert Payroll LLC provide bookkeeping and other online payroll services for many businesses in the greater Carlsbad, CA, area. Call (760) 421-5334 to learn more about what we can do for you.