Taking that giant leap into becoming a business owner isn’t easy, more so if it is your first time to do so. But once you have established your business, you begin reaping the rewards – and those rewards will make up for all the time and effort, not to mention the sleepless nights contemplating and examining your business affairs. But there’s one aspect about running a business that not many entrepreneurs look forward to, even if it is a vital aspect: your business’ bookkeeping. Not everyone will be well-versed with this, but it’s a crucial task indeed. If you are concerned about your business’ bookkeeping and want to make sure you are doing it right, here’s everything you should know about bookkeeping if you are running a small to mid-sized business.
Know what it is
The first step is to know what it is. That said, bookkeeping is simply the process of keeping records and organising your financial transactions. It’s the primary way, you as a business owner can determine if you are making a profit. When you keep a close eye on your figures, you can also easily identify any potential financial issues and address these issues before they develop into catastrophes. In a general sense, your bookkeeper will record your transactions, send out invoices, manage your accounts, make payments, and come up with your financial statements and reports. Whilst bookkeeping may be similar to accounting, bookkeeping only lays down the facts for accounting, so accounting can help you analyse your data.
Know your business’ accounts
In the bookkeeping world, accounts are not just bank accounts. Accounts are complete records of transactions of different kinds, as specialist accountants in central London like Griffin, Stone, Moscrop & Co will tell you. There are five general kinds of accounts: assets, liabilities, revenues/income, expenditures, and equity.
Your assets are resources and cash your business owns, and your liabilities are your business’ debts and obligations. Your income or revenue is the money you earn, whilst your expenditures is the cash flowing out of your business to pay for a service or item. Your equity, meanwhile, is the value that remains once you have subtracted your liabilities from your assets. You need to set up each account and then record your transactions and file them in the proper category.
Create your accounts
Whilst it’s essential to know your business’ accounts, setting up and creating your accounts is a different matter. In the past, business owners recorded their charts in an actual book (a ledger), but you can now make use of computer software. You can do it via Excel, or you can opt for desktop software such as Quickbooks Desktop. But you can also go for cloud-based software such as Quickbooks Online. Spreadsheets like Excel are cheaper than other software where you have to pay a monthly fee. Alternatively, it could also be a good idea to rely on an accountancy or bookkeeping service to handle your business accounts for you.
Balancing your books can be a tricky matter; if a transaction is recorded inaccurately, it will be impossible for you to balance your books. Many businesses outsource their bookkeeping and accounting needs, and if you want more peace of mind, you can do the same.