Every business needs up-to-date financials and a system that keeps track of all of your business’s transactions from invoices and receipts to tax forms and payroll records. The below is what every entrepreneur should know about bookkeeping.
- Why Does My Business Need Bookkeeping?
No business owner enjoys doing bookkeeping. But it needs to be done in order for you to see how your business is doing. It can answer:
- Where is my cash going each month?
- Is my business earning a decent return on my money?
- Is my business profitable?
- Is my business growing or do I need to make some changes?
Answers to all these questions allows you to make informed business decisions.
Up-to-date bookkeeping also helps you understand:
- Who you owe money to?
- Who owes you money?
- How much income tax will you owe?
- How much cash do you have in the bank?
Managing cash flow is essential because it allows you to take early payments discounts or if your supplier is having a sale you can stock up.
Some other reasons why bookkeeping matters:
- Don’t miss out on deductions. By having immaculate books, every transactions is recorded accurately and you will be able to claim all tax deductions with the proper supporting documents.
- Securing a business loan. Having up-to-date books allows lenders a clear picture of your business’ financial situation and let’s them make projections to see if you company can pay off the loan in the future.
- Catch errors. If you are not keeping the books up-to-date, how will you be able to tell if the bank made an error? Doing your books monthly allows you to catch the mistakes early and not when it’s too late.
Now that we’ve determined why your business needs bookkeeping and it’s importance, we can go over how to do it easier and better.
2) Separate Your Personal Expenses From Business Transactions
As an accounting firm who has seen this time and again, we cannot stess enough that if you start a business, open up it’s own business bank account with it’s own credit card.
This will ensure the bookkeeping process is a lot easier. By combining your business transactions with your personal ones, it can take you hours to sort through all the records when doing your books. This can make your bill you get from your accountant or bookkeeper be a lot higher than it needs to be.
3) Choose a Bookkeeping System
Deciding what system to use for your business’ bookkeeping and accounting, it’s good to get an idea of what you want the system to do for you. Ask yourself:
- Reporting – Do you want to compare reports each month and review them?
- Basics – Do you just want to be able to file your taxes on time?
- Invoicing – Will the system be used for invoicing?
- Cost – What is the budget you have for the system?
- Functionality – Will you need certain applications to connect to your system (e-commerce, etc.)?
Deciding how how much you want your system to do for you is your choice, if you need help making a choice on the right software, send us a message and we’ll help point you in the right direction.
4) Categorizing Your Transactions
The way your business will categorize your transactions depends on what industry you are in. If you are not sure what category to put something in, you should always put it in the category that makes the most sense to you.
Your transactions will fall into five different account types: assets, liabilities, equity, revenue, and expenses.
Below are just a few common categories you will use when doing your bookkeeping:
- Sales – Revenue earned from selling your product or service. It could be helpful to track the sales either through product sales and service sales using multiple accounts.
- Advertising – These are the costs needed to promote your business.
- Meals and Entertainment – These are meals and entertainment costs that are related to all business activities. If you are taking a client out for lunch or your staff, that would be this category.
- Property, Plant & Equipment – Any land, real estate, or office equipment/furniture goes into this category. These are assets and not expenses.
- Suspense – Some bookkeepers will use a suspense account for items they aren’t sure where to categorize them. We generally don’t recommend using this account because than the accountant’s, us, will have to make a ton of adjustments. Try choosing the appropriate category and move on.
Don’t try to overcomplicate categorizing your transactions.
5) Keeping Your Documents Organized
All of your business’ expenses and purchases need to be organized and stored because when you have to show the CRA supporting documentation, it is on you to do so. From purchasing a new automobile to expensing a meal with a client, everything needs to be kept.
6) Should I Do My Own Books or Hire a Bookkeeper?
Your business’ bookkeeping needs to be done no matter what. Theres really only a few ways to have it done
- DIY – You need to learn how to do bookkeeping and then spend extra time outside of your business inputting the numbers. This allows you to save money but if you value your time this may not be the route for you.
- Hire a Bookkeeper – This can be done using an outside accounting firm or hiring an employee to do it. This will cost money but it will let you rest at ease knowing your books are being looked after.
Whatever option you choose you need to be confident that your books are right and not filled with mistakes.
