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Basics Bookkeeping Services Guide for SMEs

Posted on 08/04/2024

Tables of Content: A Bookkeeping Guide for SMEs

  • Step 1: Separate Your Business And Personal Expenses.
  • Step 2: Choose An Accounting System.
  • Step 3: Choose An Accounting Method: Cash Or Accrual.
  • Step 4: Choose The Right Tools.
  • Step 5: Make Sure Your Transactions Are Categorized.

Separate Your Business And Personal Expenses

The first step to mastering your business finances is simple: bookkeeping for small businesses starts by creating a bank account and separating your business and personal expenses.

Now how can you do that? If you run a business or LLC and there isn’t enough bifurcation between your personal and business finances, there is a chance that you could be held personally liable for any debt incurred by your business. Small business bookkeeping services can easily be outsourced to the right firm.

Mixing personal and business expenses in the same account can also lead to unnecessary stress when filing taxes or accounting. A business bookkeeping expense could be lost on your account, and you miss a major deduction. Or it could mean that your CPA spends more time paying taxes. Either way, you end up losing more money than can be anticipated.

Choose An Accounting System

There are two main accounting methods: single-entry accounting and double-entry accounting.

With single posting, journal entries are posted once, either as costs or as receipts. Assets and liabilities (such as inventory, equipment, and loans) are tracked separately. Several accounting packages for small businesses are available. Single Entry is probably for you if you’re just starting to write your books and are still in the hobby phase. It’s easy, fast, and good for basic bookkeeping.

The double entry is more complex but more robust and suitable for established businesses that have moved beyond the basic stage. You can simply hire accounting services for small businesses to offshore firms.

With double-entry bookkeeping, all transactions are recorded in a journal, and then each line item is recorded twice in the general ledger, both as a debit and as a credit. Most bookkeeping programs today are based on double-entry bookkeeping, and if you ever hire an accountant or accountant to help you with your books, double-entry bookkeeping will be used.

Choose An Accounting Method: Cash Or Accrual.

When setting up your accounting, you have to make another important decision: whether you want to do your accounting on a cash basis or an accrual basis.

In cash accounting, you only record transactions when the money has been exchanged. If you bill a customer today, those transactions won’t appear in your ledger until the money is in your bank account.

Basic bookkeeping for small businesses includes cash accounting because it’s easy to maintain, doesn’t require keeping track of credits or debts, and tells you exactly how much cash you have on hand at any given time.

Using accrual accounting, you record revenue when you bill your customers in the form of credits (even if they don’t pay you for a few months). The same goes for expenses you record when they are billed to you in the form of accounts payable in your basic accounting for small businesses.

In general, accrual accounting is better for larger, more established companies. It gives you a more realistic idea of your business’s income and expenses over a given period and provides a long-term view of business that cash accounting cannot provide. Whatever you choose to go ahead with, you can go for small business bookkeeping services near me or have an online accounting service for small businesses.

Choose The Right Tools.

Every transaction you make should be categorized as recorded in your books. It is something that the business bookkeeping services adhere to. This will help your accountant from an outsourcing accounting service for small businesses record more deductions and make your life easier when you have to audit.

How you categorize transactions depends on your business and industry. Your transactions generally fall into five account types: Assets, Liabilities, Equity, Income, and Expenses. Individual line items are further divided into subcategories called accounts. For example, some of your general ledger accounts in an ice cream shop might be “Revenue – Ice Cream Sales,” “Expenses – Ice Cream Ingredients,” etc. Nowadays, you have three options when it comes to accounting tools. Online bookkeeping services for small businesses can help you get sorted easily with it.

You can opt for one of the dozens of popular cloud accounting solutions, such as QuickBooks, Xero, or Wave. Also, if you choose to outsource your work to the best bookkeeping for small businesses, these tools can be powerful if you know what you are doing.

However, if you don’t have much accounting experience (or don’t have the time to learn), they can stress you more than they help you. Business bookkeeping solutions are very important to tackle. Especially if your accountant tells you that you have used them incorrectly in the last year. Using tools like our free Excel income statement template, you can do it in a spreadsheet. Hiring or outsourcing online bookkeeping for small businesses can help a lot.

Finally, if you want someone else to do your accounting for you, you can sign up for an accounting service that provides bookkeeping and accounting services for small businesses. When bookkeeping for small business owners is required, you can expect to prepare monthly statements, provide expense reports with actionable financial information, and even file your tax returns when the time comes. This will also determine the bookkeeping costs for small businesses.

Make Sure Your Transactions Are Categorized.

Every transaction you make should be categorized and recorded in your books. This will help your accountant from bookkeeping for a small construction business record more deductions and make the audits easier. Remember, An unmarked receipt for lunch at a restaurant six months later may not mean much to you. Was it a customer’s lunch? Have you treated your employees after a successful quarter? You can avoid all these extra searches by properly classifying and logging your trades later.
Separate Your Business And Personal Expenses:

The first step to mastering your business finances is simple: bookkeeping for small businesses starts by creating a bank account and separating your business and personal expenses.

Now how can you do that? If you run a business or LLC and there isn’t enough bifurcation between your personal and business finances, there is a chance that you could be held personally liable for any debt incurred by your business.

If you’re planning on doing small business monthly bookkeeping, it’s worth talking to a professional while setting up your system to ensure the accounts you create align with your industry standards and CPA expectations. You can always outsource your work to the best bookkeeping service for small business.

Why Should You Invest in Bookkeeping?

  • You need it to pay your taxes

You need to know your net income to pay your taxes, and to know that, you need to know your total income and expenses. And the only way to know for sure is to have accurate, up-to-date books. This can be easily achieved by basic accounting for small business owners.

  • It tells you where your money is going

Compiling your books and preparing financial statements is the only way to assess the financial health of your small business. Are sales on the rise? Are your shipping costs too high? Will you have enough money to cover your paychecks next month? Does cash flow rise or fall? The only way to know for sure is to start accounting or outsource your needs to the best online accounting services for small businesses.

  • Make sure you don’t miss out on tax deductions

Keeping an accurate and up-to-date series of books is the best way to keep track of tax deductions (expenses that you can deduct from your taxable income). Small businesses searching for small bookkeeping business or bookkeeping steps for small business, can find them easily on the web these days.

The more information (and supporting documents) you can provide to your CPA during the tax period, the more deductions you can legitimately claim and the larger your tax return will be. Small business bookkeeping solutions can be availed by a simple search for you to work best.

  • You need it to borrow money

If you need to borrow money from anyone other than friends and family, you need to have your books together. This allows you to prepare financial statements, often required for obtaining a business loan, a line of credit from a bank, or a start-up investment. Bookkeeping and payroll services for small businesses can help you keep updated books to get you what you need for your business to run best.

Before giving you money, lenders, and investors want a clear picture of your business’s financial situation. You can’t do that without looking at things like revenue, cash flow, assets, and liabilities that they’re looking for in your balance sheet, income statement, and cash flow statement. This is possible only through an updated book, which can be done by accounting and bookkeeping services for small businesses.

  • It helps you spot errors quickly

If you wait until the end of the year to reconcile or put your financial transactions in order, you won’t know if you or your bank made a mistake until you’re swamped with paperwork at tax time. Regularly organizing and updating your books can help you catch those erroneous overdraft charges today rather than six months from now when it’s too late to collect them. Outsource bookkeeping services for your small business to ensure no errors are made.

Cost of Bookkeeping Services For Small Business:

Bookkeeping packages for small businesses largely depend on the work that has to be done and the project one can outsource. Part-time online business bookkeeping is generally recommended if the business can do the main bookkeeping tasks and only needs outside help with routine work such as paper filing and managing accounts, documents, etc.

For a small business looking for a bookkeeper, hiring a full-time accountant is recommended when the business has already established a stable customer base and has been in business for at least three to five years.

This would ensure that the benefits a company derives from hiring more employees outweigh the costs it incurs in hiring. You can outsource bookkeeping for small businesses to ensure perfect work is done and noted transactions every time.

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Topics: Bookkeeping Services




About the Author:

Pramod has over 11 years of experience relating to finance and accounts in diversified industries. He is an expert in resource and process optimization resulting in greater operational efficiencies.

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