Are you looking to outsource your business’s bookkeeping services to better keep track of your transactions? You can’t run a healthy and successful business if you don’t have your books in order. Without proper bookkeeping, you are likely to lose track of money you are owed and the invoices you need to pay. It can also lead to unnecessary shortages of funds and the piling up of late fees for your accounts payable.
On the other hand, proper bookkeeping gives your company a reliable measure of your business’s financial performance. It also provides information to make general strategic decisions and a benchmark for your revenue and income goals.
This post will discuss how to make your bookkeeping more effortless, especially for small business owners, as recommended by expert bookkeeping service providers in Toronto.
A Guide to Getting Bookkeeping Right
Bookkeeping is a core element of business finances. It lets you see exactly where you are spending money, where your revenue is coming from, and which tax deductions you’ll be able to claim.
In this guide we walk you through simple ways to do bookkeeping effortlessly.
Create a New Business Account
You don’t want to mix your business transactions with your personal expenses. And there’s nothing worse than sifting through many statements to find one crucial business transaction. Liability can be another big reason to create a new business account.
For example, let’s say you are running a corporation or LLC (limited liability company). If your personal and business accounts are not separate, you could be held liable for any debts incurred by your business.
Opening a new account will help you avoid confusing transactions. So, when doing your books or filing taxes, you’ll more easily know where to find the financial information you need.
Choose Your Bookkeeping Method
There are two main types of bookkeeping entry systems: single and double entry.
Under single-entry accounting, transactions are recorded once, either as an expense or as income in your overall bookkeeping record. Assets and liabilities (like inventory, equipment, and loans) are tracked separately.
If you are a small business owner just starting with your bookkeeping, this entry process is fast, straightforward and suitable for basic bookkeeping.
Double-entry accounting is more complicated. Here, you enter every transaction twice, as both a debit and a credit. Because a debit in one account offsets a credit in another, the sum of all debits must equal the sum of all credits. The double-entry system standardizes the bookkeeping process and improves the accuracy of prepared financial statements. It also allows for improved detection of errors. So, even if you outsource a bookkeeping service to help you with your books, double-entry is what they will use.
Choose an Accounting Method
The next decision you need to make when setting up your bookkeeping is whether to make your accounting process cash or accrual-based.
Under cash accounting, you record transactions only when money has changed hands. This method does not record invoices or your company’s outstanding bills until they have been paid. Many small businesses opt for cash accounting as it is easy to maintain and does not require the tracking of payables or receivables. It also tells you exactly how much cash you have on hand at any given time.
Accrual-based accounting records those invoices and bills, even if the funds haven’t been exchanged, in the form of accounts receivable and accounts payable. If you are a large established company, accrual-based accounting is recommended. This is because it gives you a more realistic idea of your business’s income and expenses and provides a long-term view of the business that cash accounting cannot provide.
Set Aside a Budget for Tax Purposes
As a small business owner, you need to identify potential deductions and make tax procedures as seamless as possible. So, budget for tax as you go along so you don’t have to pay a big chunk all at once. You can set aside a little of your income in a savings account so you can easily pay off your tax bill and gain peace of mind.
Pro tip: Set a reminder so you have enough time to fill out your tax returns without making any mistakes.
- Keep Your Records Organized to Balance Your Books
You have created your business account and picked a specific bookkeeping system. Now it is time to record what transactions are happening within your business.
Apart from having the data of the transaction, you also have to decide which accounts will be credited and debited. Say, for example, you buy a point-of-sale system for your business for $2,000 cash. This transaction will affect two accounts: cash (an asset account) and equipment (another asset account). As it will decrease your cash and add to your equipment, you will record a debit on the equipment account and a credit on the cash account.
Remember, you have to record every financial transaction in the right account. Otherwise, your account balance sheet won’t match. When you tally up account debits and credits at the end of the day, month, quarter, or year and the totals match, it means your books are balanced.
Prepare Your Financial Report
After you have balanced your books, take a closer look at them to understand your company’s financial health. You can use a summary of your understanding to make decisions about your business’s future.
Some of the most common financial reports created in bookkeeping are:
- Balance sheets
- Profit and loss (P & L) statements
- Cash flow statements
You can use different kinds of bookkeeping software to prepare these financial reports.
The entire process of bookkeeping can be daunting. But you can outsource this service to get advice tailored to your business so that you can invest more time and money in hiring key roles at your business.
Whether you do your bookkeeping yourself or outsource it to an expert, understanding the basics will help you better manage your finances. You will save time and money caused by costly errors and gain valuable insights into your business’s potential. Remember: bookkeeping experts are always there to help you reduce the hassle and stress of maintaining your books.