Bookkeeping Basics for Small Business Owners
On average, small business owners spend 10 hours each week recording, organising, and processing financial transactions – everything from accounts receivable and payable, to employee payments, expense receipts and supplier invoices. That doesn’t sound like Bookkeeping Basics to me!
While the process may be time-consuming (and tedious!), effective bookkeeping is the foundation of sound financial management – which in turn, is the lifeblood of your business.
Feeling overwhelmed by mountains of paperwork and complex calculations? Here are three bookkeeping basics to help ensure a healthy financial future for your small business.
1. Faithfully track expenses (no cheating)
Accurate and consistent expense tracking is crucial for claiming the correct tax deductions and correct GST deductions. Plus, analysing expenses can offer crucial insights into spending patterns and the overall profitability of your small business. The power of accurate data should not be underestimated.
There are so many cloud options from stand alone apps or complete software solutions to take care of tracking your spending. Keep it simple and you are more likely to keep track without added headaches. Options like Expensify and Receipt Bank help do away with manual data entry with automated functions, including:
- Receipt data capture via your smartphone’s camera (no need to hold onto paper receipts, which can get lost or misfiled);
- Synchronisation with your phone’s GPS to track mileage of business travel; and
- Importing bank and credit card data, plus integration with accounting software.
2. Timely (and accurate) invoicing
Efficient invoicing is about more than ensuring you get paid in a timely fashion. An invoice is an official record of the terms of each transaction and must be completed accurately to avoid errors in your bookkeeping process. When was the last time you actually looked at your invoice to see if it complies with ATO requirements?
Here are a few tips for professional invoicing:
- Ensure each invoice includes all the important details: contact information, an invoice number, a detailed list of products or services rendered, and a breakdown of the total amount due;
- Ensure the invoice contains your ABN and GST status; and
- Keep track of who you sent the invoice to and when it was paid, and if needed, which ones need to be followed up.
- As your business grows, consider taking up front payments or deposits to ensure your cash flow is consistent.
An online invoicing tool can streamline this aspect of your bookkeeping process and provide an efficient backup filing system.
3. Accounting software will be your new BFF
By law, every business is required to keep organised and timely financial records, and you need to keep source documents for a minimum of 5 years. So how organised are you – really – be honest now!
Manually recording income and expenses in excel or a workbook is time consuming – not to mention stressful and prone to errors for the math-averse.
Shave some time (and stress) off your weekly bookkeeping with an all-in-one accounting software solution like Xero , QuickBooks or Myob.
Online bookkeeping offers numerous advantages, such as:
- Instant reports and real time insights on profits and loss, customer accounts, payroll – and your overall financial “big picture”;
- Simplified data entry so you can collate and print invoices, purchase orders, and payroll much faster than with manual methods; and
- Improved accuracy through automation (once data is entered, the software handles all subsequent calculations and processes – including invoicing).
We know bookkeeping is not every business owners strength. However, when it comes to bookkeeping and accounting, vigilance is the key to mitigating risk and ensuring the long term profitability of your small business. Be sure to set aside time each week to update and review your books to catch any red flags and ensure your finances are on track.