To be run a successful small business, you’ll need at least the basic knowledge of Bookkeeping. This knowledge is what will help you to ascertain the profitability, losses and other financial obligations of your business.
Bookkeeping is the recording, on a day-to-day basis, of the financial transactions and information of a business. On the other hand, a bookkeeper is someone responsible for recording, coordinating and handling all financial records.
The aim of most businesses is to make a profit. Profits are not declared in isolation; they are declared after they relevant deductions and calculations have been made. Bookkeeping, therefore, helps entrepreneurs in ascertaining the profitability of their business through the proper tracking of all financial records.
With Bookkeeping, business owners can make informed financial decisions and investments. It allows the business owner to keep an up-to-date recording of the income received and expenses spent, which enables the business owner in determining the financial position of the company.
Before we dive into the basics of Bookkeeping, let’s briefly define some keywords in Bookkeeping.
- Assets: are resources that the company owns or controls and can use in generating profits.
- Liabilities: are people or companies that the companies owe. They are simply the obligations of the firm.
- Income: are revenues that the company earns from selling its products or services.
- Expenses: is the money spent by the company in their efforts to generate revenue.
Related Post: Sources of finance for Small Businesses in Nigeria
Traditional Vs Digital Bookkeeping
Traditional Bookkeeping is the practice of using book ledgers or notes in keeping track of your financial records. Alternatively, Digital Bookkeeping is the practice of using digital tools or software in maintaining business records. These two types of Bookkeeping have the same end result, which is to enable the business owner in keeping track of these accounting records.
The question of adopting digital Bookkeeping over traditional Bookkeeping is dependent on the level of funds available to the business. If you’re starting, you might not have the financial strength to adopt the digital Bookkeeping procedure, and at that point, the traditional style becomes your choice. Once you’ve started recording a considerable amount of turnover, then you can switch to digital Bookkeeping. To make the switch, you can hire an accountant or digital Bookkeeping specialist.
The digital Bookkeeping style is most preferable because of its simplicity, accessibility, and ease of entry. They’re programmed with all the accounting tools to help a small business in keeping accurate track of their financial records. Examples of accounting software that aid businesses in digital Bookkeeping include QuickBooks, Wave, Sage, etc.
Methods to Adopt
There are two main methods of bookkeeping entry: single-entry and double-entry. In single-entry, the transactions are all entered once. For instance, when you receive an income or make an expense or pay money into your bank account, the transaction is entered only once. This method works mainly for small businesses with a low volume of sales.
In double-entry, there are two sides of the entry, the debit (Dr) and the credit (Cr). For every debit entry in one account, there must be a corresponding credit entry in another account for the records to balance. This method of entry is best suited for businesses or companies with a large volume of transactions.
The double-entry method can be quite tricky for an average business owner, but when mastered, can yield more detailed results. Using digital Bookkeeping can make double-entry quite easy, as most accounting software like QuickBooks and Sage accounting are programmed using the double-entry technique.
Balancing the books
Balancing of the books or records is relatively easier for business using the single-entry method. As long as you capture all the day’s transactions, the records will balance with your cash-at hand.
When it comes to the double-entry method, balancing the books is more than capturing all the day’s transactions. To balance a double-entry account, you need to record the day’s transactions in the right place. But when you’re using digital Bookkeeping, one wrong entry might mess up your accounts. You need to ensure that you enter your transactions in the right place, so your accounts can tally with what you have at hand.
There’s a formula for balancing a bookkeeping account, it is.
Assets = Liabilities + Equities
This accounting formula means that every resource (assets) of the business will be balanced against the obligations (liabilities & equities) of the business. In simple terms, your income will be balanced against your expenses. If it shows the same figure means that it’s balancing, but if it does not mean that there’s a wrong entry in your records.
Best bookkeeping practices to help you manage your small business
- Make it a priority to record your transactions regularly. You can either set an entry time or schedule for the entry. Entering your transactions frequently will enable you to easily capture all the day’s sales and avoid omissions in the entry.
- Record your transactions only when your mind is settled. It is strongly advised to record your transactions when your mind is fresh and settled to avoid entering wrong or misplaced figures into your book of accounts.
- Start bookkeeping from day one. Starting your Bookkeeping from day one with the help you in maintaining a level of discipline and accountability in your business. So when you’re bringing in an employee or partner, the person can easily flow with the existing order.
- Outsource if you can’t handle it. if you don’t have an accounting background, tracking and maintaining your books might be difficult. Getting a qualified accountant or outsourcing it to a digital Bookkeeping agency might save you tons of errors or losses at this point.
- Balance your accounting books daily. Instead of waiting for the month to end before balancing your accounts, make it a duty to balance your sales and cash receipts daily. It will help you to quickly spot and correct errors as they occur.
- Set up sales and revenue targets and monitor them closely. Routinely monitor your revenue targets in your books of account, to determine whether or not you’re making progress.
I believe you must have known the basis of Bookkeeping at this point. It’s an essential aspect of business and shouldn’t be overlooked. Among the many benefits of Bookkeeping, it can enable your business to be structured and will also allow you to apply for loans and grants. Your business can be great again.