Bookkeeping is one of the most dreaded and daunting tasks every business owner deals with. Small business owners usually spend at least 12 hours every week performing their bookkeeping functions, which include organizing records, classifying and summarizing business transactions.
More often than not, bookkeeping tends to become too tedious and takes up too much of your time but you can’t just get away with it. While it is a great decision to decide to track your transactions, it does entail a great dose of work and discipline on your part, and that can be overwhelming most of the time.
Admit it. As a business owner, sometimes you just wish you could focus on generating income for your business than doing all these bookkeeping stuff. It’s one of those things you are required to do—sometimes even lose sleep over—when it does not even promise any additional income for your business.
Unfortunately, you don’t have a choice. No matter how time-consuming it is, and no matter how complex taxation is to understand, you don’t have a choice but to do them and understand them. Understanding accounting and tax regulations applicable to your business are necessary if you want your business to succeed. If you fail to comply, you are only bringing your business on the radar of tax regulators. Dealing with tax regulators is probably the last thing you will ever wish for, isn’t it?
The good news for business owners like you is that there are certain things that you can do to simplify your bookkeeping tasks. But before you understand the simplification process, it is necessary that you understand the importance of bookkeeping first. Just because it does not generate income for your business doesn’t mean that it is not important. In fact, neglecting it can have a direct adverse effect on your business. Having weak accounting records or no accounting records at all often leads to financial mismanagement and ultimately causes many businesses to fail.
What is Bookkeeping and Why is It So Important?
In business, bookkeeping refers to the process of recording all the financial transactions of your business. Contrary to the common notion that bookkeeping and accounting are the same, the process of bookkeeping is different from accounting. Accounting covers classifying, reporting and analyzing data. However, none of these processes is possible without organized records, which are under proper bookkeeping. So you see, bookkeeping is the first basic step in accounting.
Here are some of the reasons why bookkeeping is so important in your business:
Cash flow Management. Proper bookkeeping provides better financial analysis and management for your business. In every business, cash flow management is one of the most crucial elements you should focus on as a business owner. You cannot afford to get wrong here. Remember that regardless of whether you are busy or not, committing mistakes such as sending delayed invoices, not having follow-ups on customer payments and being blacklisted on your supplier’s list is a big no-no. Proper bookkeeping lets you avoid these by systemizing everything, from doing follow-ups, invoicing and sending payments to your suppliers on time.
Tax Obligations. Bookkeeping helps you fulfill your tax obligations. As it keeps track of all the details and documents necessary in accomplishing your annual taxes, it saves you the hassle of rushing to find all your lost bills and trying to remember all your incurred expenses during tax time. With proper bookkeeping, you also keep a Balance Sheet, Profit & Loss, and Cash Flow, making it easier for your tax advisor to give the sound tax advice that you seek.
Especially when you own a corporation, reporting regularly to your investors about the current financial status of the company is crucial. Imagine how reporting will even be possible without bookkeeping. If all the financial records of your company are well-organized, there is no need to worry about facing the stockholders of your company and presenting to them all the data that you need to present, which are usually acquired from your company’s book of account.
Business Planning. Bookkeeping is not just for well-established businesses. In fact, even when you have just started out with your business, you need bookkeeping. Having a Balance Sheet and Profit & Loss will help you have a clear view of the current financial status of your company. From there, you may already see if your company is on the right track. Hence, it becomes easier for you to make the right choices when it comes to directing the course of your business.
Abiding By the Law. Bookkeeping is required by law so when the auditing comes, you have all your records to show. Imagine having to face the audit without property-organized financial records.
Most bookkeeping activities in businesses around the world are based on the double-entry system, which means that each account has a debit and credit side. Hence, as a business owner, you are expected to record each and every transaction twice for checking purposes. Even if you think you are the kind of person who can remember everything, you cannot just collect money and spend without putting everything in black and white.
Getting your head around bookkeeping is not easy, and many businesses find themselves falling on their last legs for taking this aspect of their business for granted. Today, most companies go computerized in keeping their records so as to save time and effort. It is either they create their own database and input data there whenever necessary, or they resort to using an online service that is intended for bookkeeping.
Either way, you need to account for the correction of errors, stock control, disposal of fixed assets, trial balance adjustments, extended trial balance, and incomplete records when you book, as well as come up with year-end accounts to see how your company has fared financially for the past year.
Bookkeeping is not as simple as most business owners deem it to be. Aside from the fact that it is time-consuming, it also leaves no room for mistakes. That is why it is necessary to learn how to simplify the process. Bookkeeping requires both skills and analysis, especially since most taxation and legal implications are too complex for even an intelligent business owner to understand.
The rationale behind simplifying the bookkeeping process is simple: Many companies deal with accounting complexities that pose significant challenges to them and threaten their future, and you don’t want your company to be one of them. So, recognize the need for change. It may take up much of your time and incur significant cost to implement, but at the end of the day, you will know it’s worth the price.
Tips to Simplify Bookkeeping
Here are some ways to simplify your bookkeeping process:
Go Online and Get a Computerized Bookkeeping Program. Of course, you always have the option of maintaining your business books manually through the use of a ledger or a journal and calculate your financial ratios through a manual calculator. But if your goal is to simplify the process, you may opt for an online platform that will do most of the tasks on your behalf.
Today, most businesses use computerized bookkeeping software to track their income and expenses. If you try it, you’ll see that it does not only allow you to run more accurate financial projections but it also gets you through the tax and audit time easier. As you set up your accounting system online, you are able to accomplish and see your chart of accounts and business accounting structure without having to exhaust the ink of your pen and staying up late at night doing all the computations with your manual calculator.
You may also choose to purchase a bookkeeping product that includes options for your payroll– which has automated records for your staff to leave entitlements, invoices, payment tracking, and bank accounts reconciliation.
Open a Business Account. Opening an account that is dedicated to your business and is separate from your personal account will allow you to see clearly the coming in and out of your business finances. When you have a business account, you are able to ensure that all the income and expenses that have to do with your business are well accounted for. Aside from it helps you saves you the hassle of data entry every now and then, it also mirrors the true picture of the financial situation of your business.
Opening a business account also makes your books “cleaner.” When your books are clean, you are able to make the figures more meaningful and usable, especially when the time for assessing your business’ profitability and preparing your tax returns comes.
Regularly Enter Your Transactions. It does not help to solely rely on your memory when it comes to bookkeeping. Enter your transactions regularly to ensure that every financial transaction is kept and filed in your system. It also makes it easier to find. Imagine how frustrating and time-consuming it is to try to remember all your financial transactions from the past week. Recording your financial transactions as they occur will not only reduce your workload but will also make data entry accurate and easier for you.
Reconcile Your Bank Accounts. If there is one common bookkeeping headache that business owners deal with, that is having to fix bad bookkeeping at the very last minute so as to meet the deadline for filing tax returns. That is not only frustrating but can be very overwhelming as well.
Reconciling your business or rental property bank accounts will make your records cleaner. If you do this frequently, the process will be quicker and less overwhelming for you. On the contrary, if you leave it long between reconciliations, all your financial transactions will build up and you may end up not even remembering which specific transactions relate to which. You avoid emergencies when you do such reconciliations throughout the year.
Measure Your Profits Periodically. Regularly preparing an income statement, which includes your profit and loss, will help you get good insights into your business finances. As you do this, you also highlight the errors in your data and gives you powerful insights as to how you can improve your financial status and make more money.
Produce a Balance Sheet Semi-Regularly. As a business owner, you will see the benefits of getting into the habit of preparing your balance sheet monthly, quarterly or annually for your business or rental properties. Since a balance sheet contains a rundown of your liabilities and assets and leftover net worth, it is one of the best ways to assess the overall financial health of your company.
Keep a Schedule for All Your Bookkeeping Tasks
Bookkeeping may be a daunting task but you can make it less complex by breaking your tasks down and keeping a schedule for each of them. Identify which of them you should do on a daily, weekly, monthly and annual basis.
Take a look at this example:
Monthly Bookkeeping Tasks
Sending payments to suppliers/vendors
Documenting new vendors
Reconciling credit cards and bank accounts
Checking income and looking at how much money you have made for the past month
Send a general ledger to your accountant for his review
Bi-Monthly Bookkeeping Tasks
Categorizing your deductions
Running a payroll
Applying customer deposits to their invoices
Contacting customers or vendors and following up on unpaid invoices
Ensuring all deposits are completed
Quarterly Bookkeeping Tasks
Preparing the following:
Accounts Payable Reports
Accounts Receivables Reports
Prepare estimated taxes
File payroll tax returns
When performing your bookkeeping tasks, make sure that you keep a consistent schedule and that you perform each of them effectively and efficiently.
The importance of simplifying bookkeeping cannot be stressed enough. The key to making this aspect of your business less of a burden is by not making things more complicated than they should be. If you stick with your schedule and maintain good records by keeping track of all your financial transactions on a regular basis, you do not only take the sting out of recording and filing accounting paperwork, but you also save yourself in situations where an audit is required.