How To Do Your Own BookkeepingTanushree Mitra
As a small business owner, you’re always busy: managing staff, developing a marketing strategy, pursuing client referrals or completing any number of other tasks on a day-to-day basis. So, it’s understandable that keeping clear, accurate and comprehensive financial records falls to the back of your mind. But bookkeeping is incredibly important: both to keeping you informed of your business’s financial standing and also to avoid negative consequences for failing to report financial information properly. Here are five tips to successfully do your own bookkeeping as a small business.
1. Separate your business banking from personal banking
If you haven’t set up business bank accounts for your small business yet, this should be your top priority. All business transactions should be processed through these accounts, so that the expenses and income associated with your small business are clear to identify and interpret.
While it might be straightforward manually separating your business finances from your personal finances in the early days of your business, your financial data and cashflow will likely become more complicated as your business grows – and that’s where this advice will become crucial. If you’re doing your own bookkeeping, processing personal transactions is a waste of time. And, if you’re paying a bookkeeper to help you, it can be a waste of money.
2. Understand profit (and set a minimum level)
Setting goals or KPIs is important for all aspects of your business, but there’s arguably no reason more important than profit. As a small business owner, understanding your incomings and outgoings is crucial to the sustainability of your business. You need to set a minimum level of income that your busines needs to achieve in order to make a profit.
Once you start keeping track of this, you’ll be able to see whether you’re exceeding the level (indicating a healthy business), breaking even (a sign that slight changes need to be made), or that you’re not meeting the level (indicating that significant changes need to occur for your business to be viable).
3. Know your tax obligations
You probably already know that the way small businesses pay tax is different to income tax. It’s important that you have accurate information about your business spending and expenses so that when it’s time to calculate tax, you aren’t surprised by any of your financial reporting requirements (for example, you may need to file Business Activity Statements), and that you can claim any deductions that you may be entitled to.
4. Embrace accounting software
Bookkeeping software like Cashflow Manager can be incredibly helpful across all aspects of bookkeeping: recording and categorizing transactions, tracking your receipts, and reconciling bank statements. Accounting software is also likely to be more affordable than an in-house bookkeeper, which means less money will come out of your business while still giving your business the benefits of proper bookkeeping.
5. Evaluate, evaluate, evaluate
Don’t hesitate to analyse, question andon a periodic basis, re-evaluate your bookkeeping methods. Sometimes, what works initially is not sensible to continue with after your business experiences growth. Alternatively, methods that work well for a long period of time run the risk of becoming outdated, as newer methods become available or known to you. Adapt as your business requires, and you’ll always be ahead of the game.