Bookkeeping is a basic process for all businesses. If you’re a small business owner and you want to do your own bookkeeping but you don’t know how; keep reading.

Bench Accounting, a bookkeeping company, has put together a relatively quick guide (or crash course) on all the basics of bookkeeping. Here are its highlights:

What is bookkeeping?

Bookkeeping is the process of tracking all of your company’s transactions. Doing it lets you find out:

• Where your business spending money.
• Where your funds are coming from.
• Which tax deductions you’ll be able to claim.

Why bookkeeping matters

If you run a small business, recording and balancing its books are crucial. Here’s why:

It helps you catch more deductions

When you record and categorise each transaction in your business, you’ll be able to see which are tax-deductible so that nothing slips through the cracks.

Without year-round bookkeeping, you’ll forget about little deductions – like perhaps lunch with a client several months past that you could’ve deducted.

It can help you get a business loan

If you’re applying for a small business loan, banks will require you to provide them financial statements which show your expenses and revenue, otherwise known as an income statement.

It helps you catch financial mistakes

Bookkeeping lets you keep a close eye on your business’ transactions. This means you’ll be able to catch things like:

• Bank errors.
• Invoicing mistakes like paying somebody twice.
• Sneaky subscription fees for services that you forgot to cancel.

It gives you a clear picture where your money is going

With bookkeeping, you’ll be able to monitor your expenses, so you can budget better.

You’ll also be able to understand your cash flow so you can see what’s an expense versus payment to a loan or a credit card.

You’ll also be able to track how your business is growing and improving over time – and what months are busy and slow, helping This will help you plan for the future.

Steps to doing your own bookkeeping

You need to do a few things to carry out your company’s bookkeeping process. Here are the steps involved:

1) Separate your business and personal expenses

Make sure that your business and personal transactions aren’t intertwined so it’s clear to the ATO (or IRS for US-based entrepreneurs) what your business is earning, spending and what your bottom line net profit is.

This is especially important for C corporations (in the US) and private companies (in Australia) to have separate bank accounts for business and personal finances. Such companies open themselves up to legal problems when their finances aren’t separate.

2) Choose between single entry or double entry

Double entry is an accounting system that tracks where your money comes from and where it’s going. As its name suggests, you record each transaction twice, taking assets from somewhere (called a credit) and putting it somewhere else (called a debit).

Your debits and credits should always equal to each other. That’s how you know your books are balanced.

Let’s say you bought a new $1,000 laptop for your business. You subtract $1,000 in cash from your credit account and add $1,000 in assets to your debit account. You lost $1,000 in cash but gained $1,000 in the form of a new asset.

Single entry means you record your transactions once as they occur. It’s less robust, but if your business is a simple sole proprietorship with no inventory and employees, you can probably use the single entry method.

If your business is any more complex than that, your accountant will likely recommend the double-entry system.

3) Choose between cash or accrual

On a cash basis, you recognise revenue only when you receive it, like when you deposit the check into your account. With accrual, you recognise revenue when it’s earned – like after you complete a project and write the invoice.

If you’re a small business or just getting started, you can probably use the cash method. It’s easy to switch from cash to accrual if you need to.

If your company is more complex – like if your business earns more than $5 million in annual revenue, or if you manage large assets/investments – you’ll probably need to use the accrual method.

4) Choose a bookkeeping system

Your options are:

• To do it manually, using something like Excel or paper.
• To use accounting software.

If your bookkeeping needs are simple, Excel should be the easiest and cheapest way to go.

If you choose to use accounting software, there are a few options for small businesses, such as QuickBooks or Xero. You’ll pay a monthly fee for the software, which you can use to produce simple financial reports.

Keep in mind that you may need to have an accountant’s help to learn how to properly use the software.

5) Categorise your transactions

Categories are classifications for your transactions to help you understand what you’re spending on. These categories can help you understand what your tax deductions are.

Note that 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 of pens for the office, you’ll categorise 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 deduct that cost on your taxes.

6) Organise and store your documents

You need to keep records for your bookkeeping, but there’s more to it than just storing all receipts in a shoebox. There are two important rules:

• Rule 1: If the expense is over $75, you need records to prove the expense.
• Rule 2: You should keep every receipt and financial record for three years.

As for actually keeping the records, do it digitally. The IRS and ATO are fine with this; plus it’s more convenient for you. You won’t need the receipts to actually file your taxes, but you’ll need them if you get audited.

Some tools you can use to keep your records digitally include Receipt Bank, Evernote and Shoeboxed.

7) Make it a habit

If you bookkeep consistently, you’ll have better financial insight into your business every month of the year. You’ll also save time and avoid headaches when tax season comes.

Enter all your transactions at least once a month. Make sure you block out a recurring time in your calendar. To keep the task from feeling tedious, do it somewhere fun (like a coffee shop); or do something relaxing (like putting on Netflix) while balancing your books.

Making bookkeeping a habit will make your tax season much easier.

Should you do it yourself or hire someone?

Balancing your books on your own is free. But it can be complicated and time-consuming. The more time you devote to bookkeeping, the less time you have for running your own business.

If you decide to hire someone to do your bookkeeping, it helps save you time, gives you confidence your books are being done correctly, and makes tax time a whole lot easier.

Here’s Bench’s complete video:

Hire a bookkeeper via our Hotlist

If you’ve decided to hire someone to do your bookkeeping, do it through Remote Workmate. Unlike freelancing platforms where you do everything yourself, we do all the heavy lifting for you.

You can actually choose from our pool of top candidates right away. Simply visit our Hotlist at:
https://remoteworkmate.com/hotlist

You can browse a wide range of profiles on our Hotlist page. Once you find a qualified VA, simply fill out the form at the bottom, and we’ll get in touch with you at the first opportunity.