There are several best bookkeeping basics for small business owners. For a business to succeed, financial performance needs to be tracked and documented. Having transparent business finances ensures long term success and growth. As a small business owner, you need to understand your company’s financial status to make improvements and adjustments. Increase profit margins and productivity by knowing your money’s usage and where it is going. Here are the top bookkeeping basics for small business owners.
Understand Business Accounts
First, you need to understand bookkeeping business accounts. There are five basic accounts: assets, liabilities, revenues/incomes, expenses and equities. Assets are the cash and resources owned by your business such as account receivable or inventory. Liabilities are the obligations and debts your business owes, including accounts payable or loans. More so, revenue/income is the funds your business earns, typically through sales of product. Of course, all businesses have expenses such as paying employees and utilities. After liabilities are subtracted from the assets, equity is the value remaining, representing your interest held in the business. Definitely understand your business accounts as it simplifies tracking and recording financial transactions.
Next, a popular bookkeeping basic is tracking your business expenses. By tracking expenses, you can manage important financial responsibilities. These include monitoring business growth, building financial statements, tracking deductible expenses, preparing tax returns and legitimizing your records. Of course, you can use online systems such as business expense trackers to organize receipts and other key records. Keep receipts relating to meals, entertainment, vehicle expenses and home necessities. In fact, any portion of your home that is used for your business, such as internet, mobile devices and transportation between sites can be deducted from taxes. However, any expenses used for both personal and business use cases must be reflected as such in records. Certainly, track your business expenses to know where your money is going and what can be deducted from taxes.
Pick A Bookkeeping System
Then, choose a bookkeeping system for your small business. There are two main bookkeeping methods: single-entry and double-entry. With single-entry systems, journal entries are recorded once. They can be recorded as an expense or income. Additionally, liabilities and assets are tracked separately. Single-entry methods work best for beginner bookkeepers as they are simple and fast. On the other hand, you can choose the double-entry method. With double-entry, all transactions are documented in a journal, then recorded into the general ledger twice. They will be recorded as both a debit and a credit. While this method is more complex, it is more appropriate for established businesses. Certainly choose a bookkeeping systems for your small business.
Choose An Accounting Method
Additionally, a top bookkeeping basic as a small business owner is choosing an accounting method. Decide on whether you’ll use cash-based accounting or accrual-based accounting. With cash-based, you will document transactions only when money changed hands. You are not responsible for recording customer owed invoices or your own outstanding bills. You start recording when the customer pays you and your bills are paid. On the other hand, you can choose the recommended accrual-based method. You will record bills and invoices even if the funds have not been exchanged yet. The method you choose will affect bookkeeping tasks performance and financial management. There are several resources that can provide money management tips for your small business.
Open A Company Bank Account
Finally, open a company bank account for your small business. This is a simple way to separate business and personal finances. By separating finances, you simplify the overview of cash flow, the increase and decrease of money, and where you can cut costs. In fact, it is useful when filing taxes or being audited. Typically, you apply for an account by providing necessary business documents, a social security number and a good standing certificate. Banks may also require your business and personal credit scores. Of course, compare banks to discover which provides a solid foundation for your business’s finances. Certainly, open a company bank account to track all business earnings and expenses in one location.
There are various best bookkeeping basics for small business owners. First, ensure you understand business accounts to simplify tracking and recording of company transactions. Next, track expenses to know where your money is going and to understand what can be deducted in taxes. Then, choose a bookkeeping system to track all expenses in an organized location. Certainly, choose an accounting method that will improve financial management and tracking. Finally, open a company bank account to track all business earnings and expenses in a single location. These are the top bookkeeping basics for small business owners.