Basic bookkeeping for small business

Bookkeeping is actually the accounting process (some would say the drudgery) of recording all the knowledge regarding the transactions and financial activities of a business. What follows may be a basic overview of what bookkeeping for a little business entails.

Open a checking account

After registering a business you will want to have space where you can keep your cash from the business. Having a separate checking account keeps records distinct and can make life easier come tax time.

It also protects your assets in the unfortunate case of bankruptcy, lawsuits, or audits. And if you would like funding down the road, from creditors and investors alike, strong business financial records can increase the likelihood of approvals.

Note that LLCs, partnerships, and corporations are legally required to possess a separate checking account for business.

Start by opening up a business bank account, followed by any savings accounts which will assist you organize funds and plan for taxes.

As an example, find out a bank account and hoard a percentage of every payment as your self-employed tax withholding. An honest rule of thumb is to place 25% of your income aside, though more conservative estimates for top earners could be closer to at least one-third.

Next, you’ll want to think about a business MasterCard to start out building credit. Credit is vital for securing funding in the future. Corporations and LLCs are required to use a separate MasterCard to avoid commingling personal and business assets.

Before you ask a bank about opening an account, do your homework. Go searching for business accounts and compare fee structures.

To open a business checking account, you’ll need a business name, and you would possibly need to be registered together with your state or province. Ask the individual bank those documents to bring back the appointment.

Develop a bookkeeping system

Before we jump into establishing a bookkeeping system, it’s helpful to know exactly what bookkeeping is and the way it differs from accounting. Bookkeeping is the day-to-day process of recording transactions, categorizing them, and reconciling bank statements.

Accounting may be a high-level process that appears at business progress and is sensible of the info compiled by the bookkeeper by building financial statements. As a replacement business owner, you’ll get to determine how you would like to manage your books:

1. You can prefer to go the DIY route and use software like Quickbooks or Wave. Alternatively, you’ll use an easy Excel spreadsheet.
2. You have the choice of using an outsourced or part-time bookkeeper that’s either local or cloud-based.
3. When your business is large enough you’ll hire an in-house bookkeeper and/or accountant.
4. With numerous options out there, you’re bound to find a bookkeeping solution which will fit your needs.
5. Canadian and American business owners have to determine whether they’ll use the cash or accrual method of accounting. Let’s take a glance at the difference between the 2.
6. Cash method. Revenues and expenses are recognized at the time they’re received or paid.

Know the essential bookkeeping and accounting lingo.

When you decided to start out your business, you were just hoping to form extra money than you set in. Now it’s time to urge up to hurry on common bookkeeping and accounting terms. Don’t be embarrassed if you aren’t conversant in all the technical definitions. This is often the time to learn!

1. What is an expense? Also called “money out,” an expense is some things you buy, like supplies or rent.
2. What is a liability? Tons of individuals confuse liability with expenses. But actually, a liability is some things you owe money on, like a small-business loan.
3. What may be a sale? a purchase is a transaction you receive cash for, also referred to as “money in.”
4. What is an asset? An asset is an item your business owns, sort of a printer.
5. What is revenue? Revenue is income your company makes on a purchase. To work out your profit, subtract your expenses from your revenue.
6. What are accounts receivable? Assets ask for the cash your customers owe you once you send them an invoice.

Save important bookkeeping records.

It’s smart to keep these sorts of documents like payroll and inventory management for tax and other business purposes. An honest rule of thumb to assist you avoids getting caught without a crucial document is, if you’re unsure, scan and save it!

1. Bank Statements
2. Credit Card Statements
3. Cancelled Checks
4. Receipts
5. Bills
6. Customer Invoices
7. Customer Payments
8. Sales Receipts
9. Deposit Slips
10. Tax Returns

Payroll Documentation

Making digital copies of bookkeeping records and storing them during a designated, password-protected file on your computer is an efficient thanks to keep them organized and simply accessible.

Otherwise, you could get an old-school file box and keep it available in your office. Either way, just confirm your storage system is secure and safe from the weather. (Old receipts fade over time.)

Keep accounting statements up-to-date.

Sending an invoice isn’t equivalent thing as money in your hand. That’s why accurate income statements are so important. Counting on your customers, product(s), and payment system, you’ll be waiting on assets longer than you’d like.

Without that payment from your customer, you’ll not have the cash you would like to hide bills and other upcoming expenses. (This may be a great reason to stay an emergency fund for your business!)

Keep an eye fixed on payments coming in and frequently check for invoices that haven’t been paid. You’ll get to send some overdue notices!