SMALL BUSINESS BOOKKEEPING SYSTEM – Part 2
SMALL BUSINESS BOOKKEEPING – This is a 2 part series –
Longer BOOKKEEPING articles have the option of AUDIO
The fourth step is to choose a bookkeeping system. Your options are to do it manually using something like Excel, just paper, or use an accounting software. The best example of course, to ensure everything is done right, is to USE a bookkeeper.
If you do it in Excel, you can use something like an income statement template for a simple bookkeeping setup. All you have to do is enter each transaction as it happens. If your bookkeeping means are straightforward this is the easiest, cheapest way to go.
If you choose to use accounting software there are a few options for small businesses such as QuickBooks and Xero. There are others of course, it depends on the learning curve and time you want to take to learn how to use bookkeeping & accounting software. You’ll pay a monthly fee for the better software which you can use to produce simple financial reports.
Keep in mind though, you may need to have an bookkeepers or accountants help to learn how to properly use the software.
The fifth step is to categorize your transactions.
Categories are essentially classifications for your transactions.
To understand what you’re spending on these types of categories can help you understand what your tax deductions are.
Not all transactions are equally tax deductible, so you’ll want to know what you’re spending on office supplies, versus what you’re spending on meals. For example if you buy a box and pens for the office you’ll categorize it as office supplies. At the end of the year you’ll be able to see the total amount you spent on office supplies, and you’ll be able to deduct that cost on your taxes.
We’re getting closer to the end of simple bookkeeping for small business.
The sixth step is to organize and store your documents.
You need to keep records for your bookkeeping, but there’s a bit more to it than just storing all of your receipts in a shoebox.
There are two important rules for your record-keeping.
- Rule one, if the expense is over $75 you should keep a record to prove the expense.
- Rule two you should keep every receipt and financial record for three years.
We recommend storing them digitally. The IRS is totally fine with that. You won’t need the receipts to actually file your taxes, but you will need them if you get audited.
Some tools you can use to keep your records digitally include receipt banks, Evernote, and shoebox.
And finally, the last step is to make it a habit.
Bookkeeping isn’t the most exciting thing, but if you do it consistently, you’ll have smart financial insight into your business every month of the year.
And you’ll save yourself a lot of time and headaches come tax season and be less fearful of a tax audit.
At minimum we recommend entering all your transactions at least once a month. Block out a recurring time in your calendar. No one likes a stressful bookkeeping binge.
Should you do your own bookkeeping or hire someone? It depends on how much time you have to keep an accurate track of your business and if you think of outside help as an expense or an asset. Bookkeepers, accountants and CPA are assets. They actually save businesses a LOT of money.
Is doing your own books really free?
It depends. It’s not free if you make major mistakes and pay more taxes at the end of the year, or if it hinders your business growth in any way. You can’t really control your business if you don’t have a handle on your monthly expenses, or can plan ahead for growth. And, bookkeeping takes away from your time to do the things you need to grow your business. It can be complicated and time-consuming.
STAY TUNED…
Our next article answers the question most small business owners ask themselves.
WHAT IS THE DIFFERENCE BETWEEN A BOOKKEEPER AND AN ACCOUNTANT?
Please contact us if you have a bookkeeping question.
