Guide to Small Business Bookkeeping

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Guide to Small Business Bookkeeping

As a small business owner, the many hats you don and the wide range of tasks you’re required to juggle can make it hard to stay on top of everything important. 

But while vital back-office tasks can easily slip to the bottom of the priority pile, keeping an orderly set of financial accounts is essential to your business’s long-term success. 

Timely bookkeeping doesn’t just provide valuable insight into your cash flow, burn rate, and profitability, it yields key financial information for the data-driven decisions that can help grow your business.

In this compact guide, we break down small business bookkeeping to find out how it works and why it’s so important to your organization. 

What is bookkeeping

As an integral part of the accounting process, bookkeeping is all about recording your company’s business transactions. In general, this involves gathering, checking, entering, and filing the source documents (like receipts and invoices, for example) attached to every sale or purchase you make.

By entering these transaction amounts into an organized bookkeeping system, you gain ongoing access to the numbers and data required to analyze and predict your business’s financial health today and into the future.

What a bookkeeper does

As accounting professionals, bookkeepers use double-entry bookkeeping (where debits always equal credits) to maintain a balanced and complete set of books, up to and including a trial balance. They also ensure every financial transaction is recorded in accordance with your company’s chart of accounts.

To keep accurate, up-to-date records, professional bookkeepers carry out a number of common basic bookkeeping duties, such as:

  • Tracking transactional activities around customer and company charges and payments (usually through accounts receivable and accounts payable)
  • Generating documents like customer invoices, and financial statements like balance sheets, cash flow statements, and income (or profit and loss) statements
  • Executing regular (usually monthly and annual) reconciliations of bank and credit card accounts
  • Calculating and remitting sales tax amounts like PST, GST or HST
  • Liaising with your company accountant or auditor when necessary - especially at year-end and during tax or audit season 

Related: Key differences between an accountant and a bookkeeper

To accomplish these duties, your bookkeeper or accounting professional may use either a manual or cloud-based bookkeeping system.

Manual bookkeeping

Traditionally, a company’s financial records were managed offline by making pen-and-paper entries in a ledger book or using a computer program like Microsoft Word or Excel.  

However, manually entering data related to income, expenses, and interest is time-consuming and prone to human error. It also means having to physically store and retrieve source documents like receipts, invoices, and statements.

Cloud-based bookkeeping

Today’s online bookkeeping practices take advantage of cloud accounting software to digitally record and manage financial data, ensuring it’s easily accessible from anywhere. 

Not only can cloud-based bookkeeping save time and money by automating your company’s accounting workflow, it’s also great for:

  • Enabling collaboration across your organization
  • Keeping your data more secure
  • Providing real-time insight into your books for better financial clarity

Cloud accounting software is also scalable, which makes it easier to manage your books as your business grows.

Why timely bookkeeping is important for small businesses 

Wondering why it’s so important to keep your small business bookkeeping up to date? Here are 5 reasons why timely bookkeeping is important for your small business.

1. Cash flow visibility
By providing insight into your revenue stream, timely bookkeeping shows how well your business is performing in terms of money flowing in (income) versus money flowing out (expenses). 

2. Profitability tracking
Clean and accurate books let you track your business earnings over time so you can determine the best ways to manage and improve your profitability. 

3. Stress-free tax preparation
Instead of scrambling at year-end, up-to-date books let you track deductions as you go, calculate amounts payable in advance, and stay on top of tax deadlines.

4. Streamlined reporting
Keeping proper books ensures you always have the right information on hand when reporting financial data and performance metrics to stakeholders. 

5. Better-informed financial planning
Solid bookkeeping practices lead to clear financial reports that can help you make periodic comparisons, spot trends or patterns, and plan around important events like hiring, cost-cutting, fund reallocation, and promising new business opportunities.

Small business bookkeeping tips 

Now that you understand the importance of maintaining reliable books, here are our top small business bookkeeping tips to help you do just that.

1. Streamline your operations by going digital. 

Switching to cloud-based software lets you invoice customers directly, integrate digital tools (like Plooto, for example) that automate bookkeeping processes, and use apps (like Hubdoc or Dext Prepare) to streamline document storage so your financial data is better organized and easier to audit.

2. Keep personal and business accounts separate.

Separating your business account allows for a clear audit trail that makes it easier to reconcile bank statements, track expenses, manage cash flow, and file accurate tax returns. Maintaining an independent company account can also help you establish professional credibility as you build up your business credit score. 

3. Carve out advance funds to pay taxes.

Setting money aside monthly to cover pending payments like income and payroll taxes can ease the financial sting on your business operations.

4. Keep a close eye on expenses.

Accurately tracking expenses will ensure you maximize tax deductions like mileage or client meetings, for example. In addition to using a dedicated business credit card to consolidate your spending, you might also opt for a tool like Expensify to automate employee expense account reimbursements. 

5. Monitor your invoices carefully.

Implementing a process to stay on top of late or unpaid customer invoices will prevent them from negatively impacting your cash flow. 

Related: Download our Best practice handbook for accounts receivable for tips on improving your invoicing, payments and collections process.

6. Outsource your small business bookkeeping.

Lack the knowledge or time to keep your own books, or the funds to hire a full-time bookkeeper? Outsourcing is a great way to ensure your bookkeeping stays up to date.

At Enkel, we know that it's hard to prioritize your bookkeeping when you’re busy running high-ROI initiatives.

So, if you’re looking to outsource your small business bookkeeping to a team of accounting experts with customized services to meet your needs – Enkel is here to unburden your back office. Find out how we can help you get back to growing your business.

Gracia Chua
About Gracia Chua
Gracia Chua is the Marketing Specialist at Enkel Backoffice Solutions, a Vancouver based accounting firm that provides day-to-day bookkeeping services for small to medium-sized businesses and non-profit organizations.