What is Bookkeeping? – A Beginner’s Guide
Small business owners often have to juggle hundreds of things at a time. From marketing to product development to customer service, there are so many hats to wear.
One of the most important things that often gets overlooked is bookkeeping. Bookkeeping may seem like a daunting task, but it’s essential to help you keep track of the financial side of your business.
Without a proper bookkeeping system in place, it’s impossible to gain insights into the financial health of your business and make informed decisions.
But what exactly is bookkeeping and how does it benefit you as a business owner? If you are new to the concept of bookkeeping, you may get confused but here’s a quick overview of what it is and how you can use it to your advantage.
What is bookkeeping?
In simple words, bookkeeping is the process of recording transactions. It records all financial transactions related to your business, including
It also tracks cash flow, accounts payable/receivable, and payroll. It is the process of organizing and tracking financial statements such as income statements, balance sheets, and profit & loss statements.
If you have a proper bookkeeping system, you can easily monitor the financial performance of your business and generate reliable reports for tax purposes as well as other decision-making needs.
Benefits of bookkeeping
So now that we know what bookkeeping is, let’s focus on the benefits that it offers.
- It helps you stay compliant with the law
Some states like Utah require businesses to keep track of their income and expenses. The primary reason behind this is to ensure that the business is paying the correct taxes. It gives the government and other regulatory bodies a better understanding of the financial health of the business.
- It improves your business cash flow
Cash flow is the lifeblood of any business, whether it’s big or small. As a business owner, you need to know where your money is going and where it’s coming from. Bookkeeping helps you do just that. It provides insights into your company’s financial position and makes it easier for you to make informed decisions about cash flow management.
- It helps keep track of income and expenses
Bookkeeping is essential for tracking your income and expenses. With a proper bookkeeping system, you can quickly and easily identify which of your products and services are bringing in the most revenue and where you are spending most of your money. This helps you make better decisions about how to manage your finances.
- It simplifies tax filing
Taxes are something that no business owner wants to mess with. From penalties to businesses being closed down, the consequences for incorrect tax filing can be severe. But if you have proper reports and records, tax filing is no longer as complicated or as risky. Proper bookkeeping helps you be tax compliant and avoid any penalties from the IRS.
- Peace of mind
Running a new business is a stressful job in itself! Knowing that you have an accurate and organized record of all your financial transactions can give you a sense of relief. You can focus on other aspects of your business such as decision-making, marketing, and customer service.
Some other bookkeeping benefits include
- Improved inventory management
- Insight into customer trends
- Easier decision making
- Accurate financial statements
- Increased business transparency
How to Get Started with Bookkeeping?
So now that we know a thing or two about bookkeeping, you might be wondering how you can get started. Here are some tips.
- Get organized: To get started with bookkeeping, you need to make sure all your financial documents such as invoices, receipts, payroll records, etc. are organized and up-to-date.
- Choose a system: You can either use a manual bookkeeping system or opt for software solutions like QuickBooks, Xero, or Wave Accounting. You can also do it in an old-fashioned way – with a pen, paper, and calculator but this method can cause errors and also takes a lot of time!
- Record and track transactions: Once you have chosen your bookkeeping system, it’s time to start recording transactions. All financial data such as cash flow, income, expenses, accounts receivable/payable, and payroll need to be tracked accurately.
- Review records regularly: To make sure that everything is up-to-date, it’s important to review your records regularly, as this will help you identify any discrepancies and rectify them before they become a problem.
- Hire a bookkeeper: If your business deals with a large volume of transactions or if you don’t have the time to manage your bookkeeping, it might be a good idea to hire a professional bookkeeper, such as Evans Bookkeeping. They will be able to manage all your financial records and provide you with accurate reports so that you can make informed decisions for your business.
In conclusion, bookkeeping is an important component of any small business. It helps you stay organized and compliant with the law, monitor your cash flow, track income and expenses, make better decisions, and give you peace of mind. If done right, bookkeeping can be a powerful tool that can help you take your business to new heights!