Congratulations on starting your new business! Preparing your company books for the first time can feel overwhelming, but it can be a manageable task with some basic knowledge and organization.
“Bookkeeping is the backbone of a successful business,” stresses Jennifer Scott, founder of HireEffect, a bookkeeping company located in Texas. “It’s the foundation upon which you can build a thriving enterprise.”
“We find that many of our clients know the what of their business—what we’ll make or sell,” she added. “But they don’t know the “how” of owning a business—how to manage cash flow, the books, and taxes. That’s where we come in.”
New Business Owner Bookkeeping Tips
Here are some steps you can take:
- Choose an accounting method: You can either use cash basis accounting, where you record income and expenses when cash changes hands, or accrual basis accounting, where you record income and expenses when they are earned or incurred, regardless of when cash changes hands. Research and decide which method is best for your business.
- Set up a bookkeeping system: You can use accounting software like QuickBooks or Xero, or create your own system using spreadsheets. Make sure to separate business and personal finances, and keep all receipts and invoices organized.
- Record transactions: Enter all financial transactions, including income, expenses, and bank transactions, into your bookkeeping system. Make sure to categorize them correctly and reconcile your accounts regularly to ensure accuracy.
- Create financial statements: At the end of each accounting period, create a balance sheet, income statement, and cash flow statement. These statements will help you assess the financial health of your business and make informed decisions.
- Stay organized: Keep all financial documents and records in a safe and accessible place. Consider hiring an accountant or bookkeeper to help you manage your books and provide guidance on tax planning and compliance.
Why Bookkeeping Is Critical
These statistics suggest that bookkeeping is a critical aspect of small business success, but many small business owners struggle with it or do not have the resources to devote adequate time and attention to it.
- According to a survey by Wasp Barcode Technologies, 30% of small businesses fail because they run out of cash, and one of the main reasons for cash flow problems is poor bookkeeping.
- A study by TD Bank found that 46% of small business owners manage their own bookkeeping.
- The same TD Bank study found that 34% of small business owners use a professional accountant or bookkeeper, while 13% use accounting software to manage their books.
- A survey by Clutch found that 61% of small businesses handle their bookkeeping internally, while 39% outsource bookkeeping to an outside provider.
- A report by SCORE found that 40% of small business owners spend at least 80 hours a year on tax preparation, and 21% spend more than 120 hours.
Remember, keeping accurate books is essential to the success of your business. With some time and effort, you can master the basics of bookkeeping and have a clear understanding of your financial situation.
Take advantage of our knowledge, technology skills, and expertise. We assist business owners with bookkeeping, payroll, human resources, and more. Give us a call today.