How do I keep books for a small business?

Anyone in business should keep good records because it makes it simpler to manage cash flow, satisfy tax requirements, and understand how their firm is going.

While running a business might be unpredictable, having a good record-keeping system can help. This article will teach you about record keeping, including what you should maintain, how to keep records, and how long you should keep them.

Many start-ups and established businesses overlook this area of their operations until the end of the financial year (EOFY) approaches.

Every company is required by law to keep accurate and timely records.

I can’t emphasize enough how critical it is to organize your finances right away by setting up and using simple accounting software that meets your needs.

You must deal with numbers as soon as you start a business. No matter how tiny, every firm is required to maintain track of all transactions. This includes sales, expenses, payroll payments, and any other financial transactions in and out of your company.

Although you can do it yourself, most business owners aren’t schooled in bookkeeping. As a result, firms frequently outsource this routine task.

We’ll discuss why employing a bookkeeper is a good idea or perhaps a necessary aspect of running a business in this tutorial. Then we’ll discuss how to get the best bookkeeper for your company.

What Is Bookkeeping?

Bookkeeping is the practice of documenting financial transactions in businesses and other organizations as part of the accounting process. It entails creating source documentation for all company transactions, processes, and other occurrences. Purchases, sales, receipts, and payments by an individual or an organization/corporation are examples of transactions. The single-entry and double-entry bookkeeping systems are two of the most common types of bookkeeping. While this may appear to be “genuine” bookkeeping, any method of documenting financial transactions is a bookkeeping method.

Keep track of and categorise all of your company’s financial transactions with bookkeeping. It involves keeping track of how much money your business spends and receives.

Previously, these tasks were managed using books and ledgers, hence the title “bookkeeping.” Transactions were recorded in daybooks, cashbooks, and diaries before being transferred to a ledger.

Bookkeeping software has virtually removed the need for physical books.

What qualities distinguish an excellent bookkeeper? Qualifications help, but the mindset is what distinguishes the wheat from the chaff. When anything doesn’t add up, a good bookkeeper notice and becomes concerned when items go missing. A bookkeeper is concerned with the accuracy of financial statements and takes responsibility for encouraging clients to pay on time. In other words, a good bookkeeper is worth his or her weight in gold.

Benefits Of Record-keeping

Although running a business might be unexpected, having a robust record-keeping system can help. This article will teach you about record keeping, including what you should maintain, how to keep records, and how long you should keep them.

There are many benefits to keeping good records. First, it can help you to:

Keep track of your company’s health so you can make informed decisions.
fulfill your tax and superannuation responsibilities
keep track of your cash flow
Banks and other lenders will want to see your financial situation.

Tax and superannuation records you must keep

From the moment you file your tax return, you must retain documents for five years (in most instances) (in most situations). Income statements, payment summaries, and receipts are examples of records. You will obtain the relevant papers for submitting your taxes during the income year.

All transactions relating to your business’s tax and superannuation issues must be documented, including records that back up the information you present in your tax returns and reports.

Your firm’s tax and superannuation legislation and its structure impact which records you must keep (single trader, partnership, company or trust) (sole trader, partnership, company or trust).

The Australian Taxation Office (ATO) requires that:

Your records must not be altered and must be stored in such a way that the data cannot be altered or the record damaged.
Most records must be kept for five years, beginning with the day you prepared or got the records or the date you completed the transactions (or activities they pertain to), whichever comes first.
If the ATO requests your records, you must be able to provide them.
Your documents must be written in English or easily converted to English.

Three Reasons Why You Need A Bookkeeper

For company owners, staying on top of their accounts and money is critical. However, you may discover that maintaining your records accurate and up to date takes up more time than running your business. “Do I need a bookkeeper?” is a smart question to ask yourself. While having a can-do attitude is admirable, there are instances when engaging specialists to do the task is advisable. So, are you looking for a bookkeeper? Let’s take a look at some of the elements to consider while answering that question.

If you’re just starting out in business, you may believe you don’t require bookkeeping services. Perhaps you believe that letting your accountant sort out the figures once a quarter or once a year is sufficient. However, there are compelling reasons to hire a bookkeeper. Here are three of them:

They save you time

It’s not a good idea to do your own bookkeeping unless you’re an expert in the field. Only part of the job is processing receipts, costs, and payments. They understand how to allocate expenses to certain clients. They’ll take all of the data, enter it into your accounting program, and interpret it. A smart bookkeeper understands how to treat transactions in order to generate relevant business reports. It’s a skilled task, and your bookkeeper will complete it much faster than you.

They understand your business.

Bookkeepers have a strong understanding of your company’s finances because they deal with day-to-day accounts. They can help you figure out where your firm should go by sharing this knowledge. In addition, they can alert you to any difficulties in time for you to take action. A professional bookkeeper keeps track of your finances and keeps you out of trouble.

They help manage your cash flow.

Accountants are useful in a variety of situations, including strategic counsel, annual reports, and tax concerns. They don’t see your accounts every day, though. A skilled bookkeeper will monitor your accounts on a regular basis. This will aid in the management of your cash flow, which is critical for business success.

Bookkeeping Basic: Understanding Account Types

Many business owners undertake their own bookkeeping to save money and keep a closer eye on their company’s financial health. You can keep your money organized and address difficulties as they emerge if you do it correctly and on a regular basis.

The key to appropriately coding transactions is to understand the differences between account types. Here’s how to tell the difference between assets and liabilities, equity and income, and bananas and apples in a jiffy.
A current asset is everything that a company holds that can be converted into cash within the following year.
A non-current asset is a physical item that is not expected to be turned into cash within the next 12 months, such as office equipment, land, buildings, computers, or motor vehicles.
Amount owed by the firm that is due within the next 12 months, including scary things like credit cards.
Anything you hold that isn’t due to be paid out within the next 12 months, such as hire purchase debts or bank loans, is a non-current liability.
Shareholders‘ or an owner’s ‘interest‘ in the business includes both capital provided and profit or loss accrued over time.
Income is money earned from client sales or investment returns.
Cost of sales: How much it costs to create the things you sell in terms of raw materials, suppliers, and labour (also called cost of goods sold or variable expenses).

Bookkeeping Checklist

This step-by-step bookkeeping checklist can help you rest easily at night, knowing that you’ve completed all of the tasks necessary to get your books in good shape.

Make sure you have bank feeds set up for each account.
Reconcile all bank accounts with bank statements at least once a month.
Look for transactions that are pre-dated or future-dated.
Eat a whole family bar of chocolate in one sitting (and tidy up the debtor’s list).
Go over the list of creditors.
Check all transactions for tax codes.
Your GST liability accounts should be reconciled.
Take a look at your inventory.
All payroll liabilities accounts must be reconciled.

How To Do Bookkeeping?

Recording and reconciling are the two most critical activities in small business bookkeeping.

Recording every transaction

Maintaining correct and up-to-date records is critical to your company’s performance. Good records may help you reduce losses, manage cash, comply with any legal, regulatory, or taxation authority obligations, and enhance financial analytics. Your accountant can assist you with the creation of a record-keeping system.

Keep track of your sales. Traditionally, this was accomplished by entering them into a cash book or punching them into a spreadsheet. However, business owners are increasingly downloading sales data from point-of-sale or invoicing software directly into their books.

Keep track of your transactions. Every business purchase must be documented. If you plan to claim that expense as a tax deduction, keep the evidence of purchase as well. You can record these facts in a book or spreadsheet once more. Alternatively, you can automate the process so that all debits from your business bank account go into your accounting software.

Depending on whether you use cash or accrual accounting, you can record income and expenses at different times.

Reconciling every transaction

Reconciliation is a basic accounting technique that assures that the money spent or earned at the conclusion of a fiscal period equals the money leaving or entering an account.

It is essential for people as well as businesses to perform accounting reconciliation since it enables them to check for fraudulent behaviour and prevents them from making inaccurate financial statement. Reconciliation is typically carried out at predetermined intervals, such as once per month or once per three months, as part of the conventional accounting procedures.

The process of reconciling your business’s accounts requires making routine comparisons between those books and your bank statements to check that all of the transactions and balances are accurate – and identifying why they aren’t if they aren’t. Take into consideration any bank fees, interest payments, deposits, and payments that have not yet been made to your bank accounts.

You may need to perform bank reconciliation on a daily, weekly, or monthly basis, or even less frequently, depending on the volume of financial transactions that are processed by your company. However, in order to submit your tax reports, you will undoubtedly be required to perform a reconciliation of your books.

When transactions are reconciled as quickly as possible, it allows for speedier identification and resolution of problems. To prevent work from piling up, it is essential to complete it on a regular basis, possibly once each day.

Other small business bookkeeping duties

If you’re acting as a bookkeeper for a small business, you may also be responsible for:

accounts receivable (issuing bills and ensuring payment)
accounts receivable (paying bills on time)
payroll (paying employees)

Professional bookkeepers also assist with financial reporting (profit-and-loss, balance sheet, and cash flow report) and business performance measurement. In addition, bookkeepers are frequently BAS agents and can assist you in filing your taxes.

Why Are They Needed?

Here are some of the tasks of bookkeeper that will help to keep your business running smoothly:

Monitoring daily transactions

The recording of daily financial transactions is one of the responsibilities that fall under the purview of a book-keeper. If your accounting software enables daily automatic bank feeds, your book-keeper will find this to be an extremely helpful feature to utilise. When the lines from your bank statement are automatically imported into your accounting software, not only does it make monitoring cash flow more simpler, but it also reduces the amount of time spent manually entering data.

Managing the accounts receivable ledger and sending invoices

In most businesses, the task of producing invoices and delivering them to customers is delegated to the book-keeper. It is also common for a book-keeper to be in charge of the accounts receivable ledger and to be responsible for tracking down overdue payments.

Handling the ledger for the accounts payable

Up to a specified financial amount, bookkeepers generally make the payment on behalf of the corporation. Payment of supplier invoices, costs, and petty cash are all included.

Observing the cash flow

Bookkeepers have a number of obligations, but one of the most important ones is to make sure that their company does not run out of cash on a regular basis. They can achieve this by keeping a close eye on the ratio of their revenues to their expenses. If it seems like the organisation might use some additional cash right away, they may decide to take action or provide some suggestions.

Get the books ready for the accountant

It is the responsibility of the book-keeper to guarantee that the financial records are accurate and up to date whenever the accountant requests them. This gives the accountant the opportunity to put their talents and expertise to use by advising business owners, reporting to the board, and submitting tax returns for the company.

In practise, it is the bookkeeper’s responsibility to oversee day-to-day operations, freeing the accountant to focus on more strategic aspects of the company’s financial management. As a consequence of this, bookkeepers play a crucial role because accountants cannot perform their responsibilities without the assistance of bookkeepers.

How to Keep Track of Records

One of a company owner’s most important obligations is to keep correct records and make sure that all of your files and paperwork are up to date – not just for tax season but also for the long term in case of an audit and for compliance.

You can monitor how your firm is functioning if you keep proper records, and you won’t have to worry when the end of the year arrives. It’s rather straightforward, but so many business owners come to us concerned about their incomplete records! We wanted to help you make this process easier because running a business means you have a lot of other things to think about than record keeping.

You can store your records either electronically or on paper. However, because the ATO is rapidly moving toward electronic reporting for tax and super duties, businesses should retain records electronically if at all practicable. In addition, keeping your records electronically should make some jobs easier and save you time once you’ve set up your system.

If you retain your records electronically, there’s no need to save paper copies unless a specific law or rule requires it.

Electronically stored and maintained records are also possible. The ATO accepts pictures of business paper documents kept on electronic storage media as long as the electronic copies are a genuine and clear reproduction of the original paper records and meet the ATO’s record-keeping requirements. You don’t need to preserve the paper copies once you’ve saved an image of your original paper records.

Make sure to keep your records safe, regardless of your choice. For example, back up your files and keep them in a secure off-site location, such as cloud storage.

Whatever option you choose, make sure to keep your records safe. For example, back up your files and, if possible, save them in a safe off-site place, such as cloud storage.

The records must also be on a computer or device that:

you’ve got access to (including all passwords)
is protected in the event of a computer failure
allows you to have complete control over the data that is processed, entered, and transferred by finding a bookkeeper guide

There are plenty of bookkeeping services available. These tips will help you narrow down your choices.

Consider whether you want to hire a consultant or a firm.
Bookkeepers frequently operate alone so that they can serve multiple clients at once. On the other hand, you could hire a bookkeeping firm or an independent expert. You could even recruit a full-time employee if your company is significant enough. There is no right or incorrect strategy; it all relies on your company’s size and needs.
Decide if location, location, location is vital.
You can share remote access to your accounts data with online accounting software. However, you may choose to meet your bookkeeper in person on occasion. Determine the importance of this to you and tailor your search accordingly. For example, if you’re in Sydney, you may now locate a nearby advisor.
Make use of your social media accounts.
To identify bookkeeping pros, use online social networks, particularly LinkedIn. It’s fantastic if friends or acquaintances have suggested them. Also, consult chambers of commerce and business advisors in your area. They will almost certainly know someone who is suitable.
Look for previous experience.
Before they may lawfully undertake an accounting job, accountants must have professional qualifications. Although there are no constraints for bookkeeping, certification is available. Check if they are a member of a professional governing body, such as a bookkeepers association. Look for experience and a large number of previous clients, especially in the same industry as you. If you can, speak with some of those clients; they’ll be able to provide you with useful information.
Select the appropriate individual.
You should speak with as many people or businesses as possible. If required, interview them twice, and check their references and qualifications. Personality and cultural compatibility are also important considerations. Even if they aren’t working full-time, your selected bookkeeper will frequently communicate with you and your staff. Therefore, it pays to recruit someone who fits in well with your team. Hire someone who is nice, helpful, and, most importantly, interested.