How to Keep the Books for a Small Business
Bookkeeping in small businesses involves setting up a framework and choosing methods to keep track of contemporary activities within it. Small business owners need to remain focused on their personal hourly rate, and as quickly as the business can afford, it should be handing over the bookkeeping work. Simply stated, when your hourly rate is greater than the rate you would pay for bookkeeping services, it’s time to transition. Proper bookkeeping gives you up-to-date material which helps to plan, improve productivity and make important business decisions. Maintaining balanced books enables a business to forecast months into the future and alert you to potential financial gaps. Also, it helps organize your business, which is critical. In this post, we go through how to keep the books for a small business.
1. Learn the fundamentals of bookkeeping
In order to learn how to keep the books for a small business, you will need to understand the basic concepts of bookkeeping. It is critical that, at a minimum, a business is reconciling and reviewing its financial performance e on a monthly basis. Depending on your business type, this frequency may need to be more. (Ex. retail) But no business frequency should be less than a monthly review. You need to familiarize yourself with accounts and topics such as assets, liabilities, and equity. If you didn’t take a class like this in college, or high school, then it would be worthwhile to enroll in a free online class, or potentially invest in a paid course.
2. Separate your business account from your personal account
This may seem basic, but many people still don’t do this from the outset. So, just know that it is vital that you distinguish your personal and business finances. A separate business account helps accurately and correctly track the success of the business and gives your company personal liability protection, purchasing power, and preparedness in the form of credit. Using a personal account for business-related costs can lead to tax problems, cash flow problems, and missing important business transactions. Regardless, this will prove to be problematic when it comes to understanding how to keep the books for a small business.
3. Chart your accounts
When running a business, you will realize that you need to record transactions into different categories of accounts (known as charts of accounts). Recording transactions in these accounts over time will give you a record of how much has gone in and out of every account and how they relate to each other. Organization is key to any successful business. The more organized you are from the start, the easier it will be to grow down the line.
4. Track your cash flow
Producing a cash flow statement gives the business owner an extensive understanding of movement and helps monitor the income direction in the organization. A cash flow statement is one of the three major financial statements that analysts use, but it is also very helpful to truly be able to understand this as a business owner. The data recorded can be analyzed and help make important decisions.
5. Monitor your expenses
When it comes to learning how to keep the books for a small business, it is essential that your small business records its revenue and expenditure. Each expense should be logged in and recorded in your expense account, ideally categorized as well.
It is clear that good bookkeeping is a necessary part of the success of a business. Some final bookkeeping tips to remember include:
- Record and track all transactions on a regular basis.
- Review financial reports often to keep yourself updated with finances.
- Ensure your financial tools relate and sync with each other.
- Organize and maintain receipts and other business documents.
Use these bookkeeping tips to maintain accurate and organized records in your business. At AMB Performance Group, we offer action coaching and can help grow your business’s productivity. If you are concerned about the health of your business or looking for more on how to keep the books for a small business, then our coaching can help. Contact us today.