You’re an entrepreneur–a jack of all trades. You’ve likely dived into almost every aspect of your business headfirst and learned on the fly. That’s one of the beauties of the entrepreneurial journey. You get to learn and grow alongside your business.
Generally speaking, there is one area of business that holds most small business owners back (especially when you are starting out). That’s bookkeeping. It is a crucial element to your success, but also one of the most daunting. You might be asking yourself–can I do my own bookkeeping?
There are several considerations to tackling your own bookkeeping. You might also need to learn a few new vocabulary words for clarity. But by equipping yourself with the right tools and knowledge, you can successfully manage your own bookkeeping for your small business.
If you are looking to start doing your own bookkeeping, it’s best to understand what exactly that includes.
Bookkeeping is the process of recording and tracking the transactions that occur in your business. This comes in the form of money earned and money spent. All bookkeeping done for your business should be separate from your personal finances. Proper bookkeeping is one of the best indicators of the health of your business. It dictates when you can afford to expand, purchase new equipment, or even if your rates are too low.
There are two types of bookkeeping: single and double-entry bookkeeping. Single-entry bookkeeping is the most basic option. It requires that each financial transaction is recorded once, either as income or expense. This method is good for small businesses in the hobby stage.
Double-entry bookkeeping is more complex and time-consuming as each transaction needs to be recorded twice–once as a debit and once as a credit. This style of bookkeeping is most accurate and preferred by medium to large businesses. You’ll find that most bookkeeping software will operate with a double-entry bookkeeping system.
If you want to do your own bookkeeping, you really need only two things: 1. A business bank account, and 2. Your bookkeeping software of choice.
When choosing a bookkeeping software, choose one that matches your stage of business. A beginning consultant or freelancer does not need the entire suite of QuickBooks, nor does your budget allow for it. Check out our favorite budget-friendly bookkeeping software here.
Once you’ve decided what type of bookkeeping you will do, the next step is what accounting method you are going to follow. Your choices are:
Cash basis accounting is most commonly used for very small businesses. In this method, you will not record any money as being owed or paid until the money exchanges hands. If you sent an invoice today, you wouldn’t record it until you receive payment. Cash accounting is easy to use as you remove the need for accounts receivable/payable. You can quickly tell how much cash you have on hand.
Accrual accounting records transactions on the date they are issued (i.e. an invoice sent in February would be recorded in February even if you did not receive payment until March). The advantage of accrual accounting is that you can see a more accurate picture of your finances by month. For this reason, it is the preferred method of accounting for larger businesses.
So if you are ready to do your own bookkeeping, what do you actually need to DO?
Take a look at the transactions in your bookkeeping software. Confirm each transaction is accurate and classify it into the right category. If there is any additional information or notes you need to add to a transaction for future reference, do that now.
Your bookkeeping software should assist you as you match & categorize each transaction. These categories help you get a better overall picture of your expenses and earnings at the end of the year. Stay consistent with how you classify certain transactions. This will help you track tax deductible items at the end of the year.
Reconciling your accounts is the largest part of doing your own bookkeeping. The best way to stay on top of it is to keep things organized and regularly check in with your books. This could be a weekly or bi-monthly task. If you have very few transactions, you can review your bookkeeping monthly.
Look at your bank account or any notes about cash transactions, is anything missing from your software’s entries? Manually enter those transactions as needed. This is also a good time to make notes if you had business expenses that aren’t recorded as transactions like mileage. The IRS has a standard mileage rate per mile that you can deduct from your taxable income if it was for business purposes. Keep track of mileage in a separate document for tax purposes.
There are lots of great options for tracking paper receipts instead of stuffing them in a drawer or folder. Check out apps like Shoeboxed for easy digital record keeping.
*You’ll only need to record items as accounts payable or accounts receivable if you choose accrual basis accounting.
Accounts Payable is what you owe to other businesses or people. This can be subscription fees, professional services, equipment, or credit cards.
Accounts Receivable includes your incoming cash from invoices, client work, and investments (if applicable).
Creating, sending, and collecting invoices can be a tedious task. It all depends on your invoicing software, the number of invoices you send, and if your clients pay promptly. If you want to keep cash in your small business, you need invoices that are paid upon receipt. Struggling to collect payment? Check out our guide to collecting unpaid invoices the easy way.
Just like you deserve to be paid on time, so do those that work with you. Whether you hire temp help or have someone in a more permanent position, make sure you stay current with issuing payments.
When it comes time to prepare for tax season or you are facing big business decisions, it’s best to set up a call with your CPA. Make sure that you are aware of the bookkeeping laws and regulations in your area. If your bookkeeping is all up-to-date, you or your accountant can easily pull important information or run accurate reports.
The most important thing you can do when you do your own bookkeeping is to stay consistent. The longer you leave your bookkeeping undone, the harder it is to complete. You lose the ability to see the financial status of your small business. And you make tax time a whole lot more difficult.
Every month schedule a time to visit with your books. Depending on the size of your small business this may need to be a weekly, bi-weekly, or monthly task. The important thing is that you show up to check these tasks off your list.
The second most important part of doing your own books is that you stay organized. App integrations help a lot with this because many of your processes will be automatic. However, there will still be some manual tasks and records that you will need to keep on file either electronically or physically. Try keeping a desktop folder that holds your most important files and receipts or utilize a Google Drive folder. Or check out Shoeboxed to quickly turn paper receipts into digital data.
Doing your own bookkeeping may feel like just another task to cross off, but it has huge implications for your business. Proper bookkeeping can keep you from running out of cash and ultimately being able to pay yourself and/or your employees.
If you’ve ever wondered at the end of the month, “Where’d all my money go?” You may want to take a look at your bookkeeping. Open up your Profit and Loss statement to get perspective on your spending and earning habits.
When you are a small business owner, it is important to keep personal finances and business expenses separate. That starts with a business bank account. From there, set up a great bookkeeping software that integrates with other aspects of your business. This will make it easier to import transactions, and track payments and fees.
When left unchecked, it can become too easy to forget what happened. Was this receipt for a client lunch? Why was this invoice different from the rest? Did they pay this? This creates huge headaches for you and your CPA when it comes time to pay your taxes. Regularly performing all of your bookkeeping tasks keeps you from missing mistakes and errors until it’s too late.
Big questions often require data-backed answers that only proper bookkeeping can support. If you want to invest in new equipment or hire help…A clear picture of your financial health can tell you if that’s possible.
Bookkeeping is a key element of running a successful business. Whether you do it yourself or hire help, proper bookkeeping is crucial to keeping your business organized and running smoothly. It is much easier to stay organized if you regularly check in with your bookkeeping.
Taxes are a big part of running a business, but so are deductions. If you don’t manage your books well, you won’t know what deductions are available to you–which decreases your taxable income.
Sometimes the answer to “can I do my own bookkeeping?” is no. And that’s okay! Doing your own bookkeeping might be easy initially, but there will come a time when it makes more sense to outsource it.
For example, here are three signs should outsource your bookkeeping:
When bookkeeping outstretches the limits of your time and abilities, it’s time to look for outside help. Seek out a partner that is supportive and understands your business needs and stage of life. It’s one of the first areas that business owners start looking for help for good reason. Quality bookkeeping matters. If you are seeking bookkeeping support, learn more about LessAccounting’s bookkeeping services here. Our talented team can manage your books on any platform or give ours a try at no extra cost.