For small businesses, making sense of your finances is crucial when it comes to figuring out where you‘re going and how you’re going to get there. If you’re not sure where your money is coming from and where it’s going it can lead to complete chaos. That’s why proper bookkeeping is such a vital component of any SME.
Whether it’s something you plan on handling yourself while your business grows, or a task you think you might need some help with, it’s certainly not something you can afford to ignore.
The difference between bookkeeping and accounting
Bookkeeping is just one aspect of accountancy. It is the process of recording and reporting company finances, while accounting refers to overall financial analysis and strategy building. You don’t need to be an accountant to be a bookkeeper, but you do need to be a bookkeeper to be an accountant.
Bookkeeping involves managing the daily finances of a business such as making and chasing payments, sorting out tax and managing staff payroll. You’ll be tracking payments coming in and out of the business via cash books and invoices that make up your “books”.
You may find as your business begins to scale that you need more books to keep track, all to be kept in check for your own benefit and in case you face an audit. But, when starting out, your books are likely to be restricted to a cashbook, sales invoices and purchase invoices.
Small business bookkeeping tips
The following tips should help any bookkeeper keep their financial affairs in order.
Every payment should be accounted for, whether it is incoming or outgoing. You must keep track of your business expenses, as you’ll need a record if you’re going to claim tax back from them. It doesn’t matter how small the expense or the gain – you’ll need a thorough account of every financial action if you want to develop a reliable financial picture of your business.
Choose cash accounting or traditional accounting
Your bookkeeping forms the foundation of your accountancy department. So, while it might not seem important now, think about whether or not the method you choose will scale. Cash accounting means recording income and expenses when you actually receive payment, whereas traditional accounting means recording when the invoice is filed. Cash accounting is the cleaner and easier option and means you’ll never pay tax on money you haven’t received yet, but it’s only taxable if your business turnover is under a certain amount.
Be punctual and organised
Ensure all bank statements and invoices are filed in date order and keep paid and unpaid invoices separate. As for how you file them, alphabetically by supplier name is a tried and tested method for purchase invoices, while sales invoices should always be numbered sequentially in order of when they should be paid. Be strict with your deadlines too. Never miss a payment and always give clients a strict deadline.
Use the right software
Gone are the days when a simple Excel spreadsheet would suffice. Today, there are dozens of fully featured specialist bookkeeping software options on the market that are developed to make bookkeeping more efficient. Xero bookkeeping software, for example, is a complete package with various plans starting from as little as $12.50 per month. This software automates and consolidates your bookkeeping activities, producing monthly reports and scaling effortlessly as your business does likewise.
If we can offer just one piece of advice, it is to get your software sorted. It’s a tool that no modern SME should be without. For new bookkeepers, it lays out everything clearly and does a lot of the heavy lifting for you. Veteran bookkeepers, meanwhile, will wonder how they ever lived without it.
We can help
In 2021, outsourcing bookkeeping is an unnecessary expense as long as you have the right software. If you’re interested in learning more about the best bookkeeping software for you and your business then get in touch with our financial experts. Find out how GoCardless can help you with ad hoc payments or recurring payments.