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Everything to Know About Small Business Bookkeeping in 2022
Read this blog post to know everything you need to know about small business bookkeeping in 2022, From basics of bookkeeping latest trends & technologies
From keeping track of inventory to monitoring expenses, bookkeeping is an essential part of running a small business. Not only does it give you a clear picture of your finances, but it can also help you save money and plan for the future. Yet, with so many different aspects to consider, it can be difficult to know where to start.
Fortunately, we're here to help. In this blog post, we'll give you everything you need to know about small business bookkeeping in 2022. We'll cover the basics of bookkeeping, as well as some of the latest trends and technologies. By the end of this post, you'll have a clear understanding of what it takes to keep your business finances in order. So let's get started!
What Is Bookkeeping?
Bookkeeping is the process of recording, classifying, and summarizing financial transactions to provide information that can be used in making business decisions. The transactions recorded in bookkeeping include purchases, sales, receipts, and payments by an individual or organization.
Bookkeeping is a vital part of any business, as it provides insights into the company's financial health and performance. Without accurate and up-to-date bookkeeping records, it would be difficult to make sound financial decisions or understand how the business is performing.
While bookkeeping can be done manually, many businesses now use computerized systems to automate the process and improve accuracy. Whether you're a small business owner or a corporate executive, understanding bookkeeping is essential to making informed decisions about your company's finances.
What Does A Bookkeeper Do?
A bookkeeper is responsible for keeping financial records accurate and up to date. This includes maintaining ledgers, preparing invoices, and posting transactions. A bookkeeper also reconciles accounts and prepares reports for the organization's management team. They use a variety of software programs to do their job, and keep track of a large volume of financial data.
Additionally, an important part of a bookkeeper's job is ensuring that the organization's financial records are compliant with legal regulations. Bookkeepers usually have strong attention to these legal norms and are competent in securing your firm’s financial future.
Plus, most bookkeepers are proficient in offline & online accounting software and have a solid understanding of generally accepted accounting principles (GAAP).
Why Do Small Businesses Need Bookkeeping?
Small businesses need bookkeeping in order to keep track of their finances and make informed decisions about where to allocate their resources. Here are a number of reasons why small business bookkeeping is essential:
1. Keeping track of their income and expenses: Without accurate records of their financial transactions, businesses would have no way of knowing how much money they are making or spending. This information is essential for making informed decisions about where to allocate resources.
2. Facilitates tax compliance: Accurate bookkeeping records are necessary for filing taxes accurately and on time.
3. Provides financial insights: By tracking a company's financial transactions, bookkeepers can provide valuable insights into a business's overall financial health. This information can be used to make strategic decisions about how to grow the business.
4. Strengthens decision-making: Bookkeeping provides small businesses with the data they need to make informed decisions about their finances. This information can be used to make decisions about pricing, marketing, and other areas of the business.
5. Identifying opportunities for growth: By looking at past patterns of income and expenditure, a small business can identify potential areas for expansion.
6. Building a strong credit history: This is important for small businesses that may need to take out loans in the future. Having a strong credit history will make it easier to obtain financing on favorable terms.
The Basics Of Bookkeeping for Small Businesses
The three essential elements of bookkeeping for small businesses are the income statement, balance sheet, and chart of accounts. Let's have a deeper look at these three concepts.
1. Income Statement
The income statement is a report that summarizes a company's financial performance over a period of time. It shows a company's revenues, expenses, and profits. The income statement can be used to assess a company's financial health and make strategic decisions about where to allocate resources.
Also, known as the profit and loss statement, the income statement is one of the most important financial statements for small businesses. It provides insights into a company's profitability and helps managers make informed decisions about where to allocate resources.
2. Balance Sheet
A balance sheet is a report that summarizes a company's assets, liabilities, and equity. It provides insights into a company's financial stability and can be used to make informed decisions about where to allocate resources.
Additionally, the balance sheet is an important financial statement for small businesses. It shows a company's assets, liabilities, and equity, which provides insights into a business's overall financial health. This information can be used to make strategic decisions about how to grow the business.
3. Chart Of Accounts
The chart of accounts is a list of all the account types that are used to record a company's financial transactions. It is important for small businesses to have a clear and accurate chart of accounts in order to keep track of their finances and make informed decisions about where to allocate resources.
Chart of accounts helps business owners see where their money is going, what type of expenses they have, and how much revenue is coming in. This information is essential for making informed decisions about pricing, marketing, and other areas of the business.
Bookkeeping Options For Small Business Owners
There are a few options available for small business owners who need bookkeeping services. They can either do it themselves, hire an in-house bookkeeper, or outsource to a bookkeeping service.
1. Bookkeeping Software Platforms
There are many bookkeeping software platforms available that can be used to track a company's financial transactions. These platforms typically have a monthly or yearly fee. The benefits of using a bookkeeping software platform include the ability to automate bookkeeping tasks, generate financial reports, and track expenses.
These software provide an option of DIY bookkeeping for business owners and managers who want to keep track of their finances without the help of an accountant or bookkeeper.
2. External Consultants And Outsourcing
Another option for small business owners is to hire an external consultant or outsource bookkeeping services to a company. The benefits of doing this include access to expertise, cost savings, and the ability to focus on other areas of the business.
3. In-House Bookkeepers
Some small businesses choose to hire in-house bookkeepers to handle their financial transactions. The benefits of having an in-house bookkeeper include having someone on staff who is familiar with the company's finances and can provide insights into financial data.
How To Set Up Bookkeeping For Small Businesses?
Here are the end-to-end steps for establishing a successful bookkeeping model for small businesses.
1. Choose A Bookkeeping Method That Works For You
The most important part of bookkeeping for small businesses is choosing a method that works best for you and your company. There are two main ways of bookkeeping- single entry and double entry.
Single entry bookkeeping is best for businesses with simple transactions, such as service-based businesses. Double entry bookkeeping is more complex and is better for businesses with inventory or who sell products. So, if you’re a small business owner, decide which method is right for you before moving on to the next steps.
2. Create Your General Ledger
The general ledger is where you will record all of your small business’s financial transactions. This includes income, expenses, assets, and liabilities. You can create your general ledger using accounting software or by hand.
If you decide to do it yourself, you will need to create ledgers for each type of transaction and then transfer the information from your receipts and invoices into the appropriate ledger. This can be time-consuming, so if you don’t have experience with bookkeeping, it might be best to use accounting software.
3. Account Creation For Your Business
Once you have your general ledger set up, you will need to create accounts for your small business. Accounts receivable and accounts payable are the two most common types of accounts.
Accounts receivable is money that is owed to your business, such as from customers who haven’t paid their invoices yet. Accounts payable is money that your business owes, such as to suppliers or vendors.
You will also need to create an account for each type of income and expense, such as rent, utilities, marketing, and payroll. This will help you track where your money is going and where it’s coming from.
4. Maintain A Record Of Every Financial Transaction
In order to keep track of your small business’s finances, you need to maintain a record of every financial transaction. This includes all income, expenses, assets, and liabilities.
You can do this by using accounting software or by creating a spreadsheet. If you use accounting software, it will automatically generate reports that show you where your money is going and where it’s coming from.
If you create a spreadsheet, you will need to input all of the information manually. This can be time-consuming, but it will allow you to customize the reports to fit your specific needs.
5. Keeping The Books In Balance
Once you have all of your small business’s financial information recorded, you need to keep the books in balance. This means that your income must equal your expenses.
If your income is greater than your expenses, you have a profit. If your expenses are greater than your income, you have a loss. You can use accounting software to track your profits and losses.
6. Prepare Financial Reports
Once you have all of your small business’s financial information recorded and the books are in balance, you need to prepare financial reports. Financial reports show how much money your business has made or lost over a period of time.
You will need to prepare a balance sheet, which shows your assets and liabilities, and an income statement, which shows your revenues and expenses. You can use accounting software to generate these reports.
7. Create A Bookkeeping Schedule
In order to keep track of your small business’s finances, you need to create a bookkeeping schedule. This schedule will help you stay on track and ensure that you are recording all of the information accurately.
Most small businesses record their financial information on a monthly basis. However, if you have a lot of transactions, you might need to do it more often. You can use accounting software to automate this process.
8. Make Sure Records Are Stored Securely
Once you have all of your small business’s financial information recorded, you need to make sure it is stored securely. This includes both physical and digital records.
Physical records should be stored in a safe place, such as a fireproof safe. Digital records should be stored on a secure server. You can use accounting software to protect your digital records.
With these eight steps, you can establish sound bookkeeping practices for your small business. By staying organized and keeping track of your finances, you can ensure that your business is running smoothly and efficiently.
Tips For Small Business Bookkeeping for Beginners
Small businesses have a lot to keep track of, and bookkeeping can seem daunting. However, by following these small business bookkeeping for beginners tips, you can make the process easier and less time-consuming:
1. Keep Your Business’s Financial History Ready
The first step in small business bookkeeping is to keep your financial history ready. This includes all of your company’s financial records, such as income statements, balance sheets, and tax returns.
You should keep these records in a safe place, such as a fireproof safe. You will need them if you ever apply for a loan or invest in your business.
2. Keep Personal And Business Costs Separate
It is important to keep personal and business costs separate. This will help you track your expenses and ensure that you are only spending money on business-related items.
You can do this by opening a separate bank account for your business and using a credit card that is specifically for business expenses. You should also create a budget for your business.
3. Track Absolutely Everything
In order to keep track of your small business’s finances, you need to track absolutely everything. This includes all income and expenses, no matter how small.
You can do this by using accounting software or by creating a spreadsheet. Whichever method you choose, make sure that you are recording all information accurately.
4. Plan Ahead For Taxes
Taxes can be one of the most difficult aspects of small business bookkeeping. However, by planning ahead, you can make the process much easier.
You should keep track of all of your business’s income and expenses so that you can easily prepare your tax returns. You can use accounting software to help with this. You should also consult with a tax advisor to ensure that you are following all of the necessary steps for small business bookkeeping and tax.
5. Set Aside An Emergency Fund For Major Expenses
One of the most important aspects of small business bookkeeping is setting aside money for major expenses. This includes things like repairs, new equipment, and marketing campaigns.
You should have a separate bank account for your business’s emergency fund. You should also make sure to contribute to this fund on a regular basis.
6. Regularly Cross-Check And Audit Files
It is important to regularly cross-check and audit your small business’s financial records. This will help you catch any errors or discrepancies.
You can do this by comparing your records to your bank statements. You should also have someone else review your records on a regular basis.
7. Use Accounting Software
Accounting software can be a valuable tool for small business bookkeeping Canada. It can help you automate the process and keep track of your finances more easily.
There are many different accounting software programs available, so make sure to choose one that is right for your business. You should also consult with an accountant to ensure that you are using the software correctly.
8. Make Sure Records Are Stored Securely
Once you have all of your small business’s financial information recorded, you need to make sure it is stored securely. This includes both physical and electronic records.
You should keep physical records in a fireproof safe. You should also encrypt electronic records and store them in a secure location.
9. Hire A Professional Bookkeeper
If you are not comfortable handling your small business’s bookkeeping yourself, you can always hire a professional. This is often the best option for businesses that are complex or have a lot of financial transactions.
When hiring a bookkeeper, make sure to choose someone who is experienced and reputable. You should also ask for references and ensure that they are properly licensed and insured.
10. Keep Good Financial Habits
Finally, one of the most important tips for small business bookkeeping is to develop good financial habits. This includes things like keeping track of your expenses, maintaining accurate records, and staying organized.
If you can develop these habits, you will be well on your way to success.
Small Business Bookkeeping Mistakes To Avoid
The key to success in small business bookkeeping is avoiding common mistakes. Here are 10 of the most common mistakes that small businesses make:
1. Not Keeping Accurate Records
One of the most important aspects of bookkeeping is keeping accurate records. This includes both financial and non-financial information.
If you do not keep accurate records, it will be difficult to track your progress, prepare your taxes, and make sound financial decisions.
2. Failing To Communicate About Financial Reports And Activities
Another mistake that small businesses make is failing to communicate about financial reports and activities. This includes things like sharing information with employees or shareholders.
If you do not communicate effectively, it will be difficult to make sound financial decisions.
3. Choosing The Wrong Accounting Method
Choosing the wrong accounting method is another common mistake that small businesses make. There are two main types of accounting methods: cash-basis and accrual.
Cash-basis accounting is more suitable for businesses with simple financial structures. Accrual accounting is more suitable for businesses with complex financial structures.
Make sure to choose the right accounting method for your business. You should also consult with an accountant to ensure that you are using the correct method.
4. Not Consulting With A Tax Advisor
Many small businesses make the mistake of not consulting with a tax advisor. This can be a costly mistake, as it can lead to missed opportunities or errors in your tax return.
A tax advisor can help you maximize your deductions and minimize your tax liability. Make sure to consult with a tax advisor before preparing your taxes.
5. Not Reviewing Financial Statements Regularly
Another mistake that small businesses make is not reviewing their financial statements regularly. Financial statements can provide valuable insights into your business’s financial health.
Make sure to review your income statement, balance sheet, and cash flow statement on a regular basis. This will help you identify trends and make sound financial decisions.
6. Failing To Reconcile Accounts
Failing to reconcile accounts is another common mistake that small businesses make. Reconciling your accounts means comparing your records to your bank statements to ensure that they match.
If you do not reconcile your accounts, it will be difficult to track your expenses and income accurately. This can lead to errors in your financial statements.
7. Not Managing Inventory Properly
Many small businesses make the mistake of not managing their inventory properly. This can lead to lost or damaged inventory, which can be costly.
Make sure to keep track of your inventory levels and perform regular audits. This will help you avoid losses and ensure that your inventory is accurate.
8. Not Protecting Electronic Records
Another mistake that small businesses make is not protecting their electronic records. This includes things like customer data, financial records, and employee records.
If you do not protect your electronic records, they could be accessed by unauthorized individuals. This could lead to identity theft, fraud, or other crimes.
9. Not Filing Taxes On Time
Many small businesses make the mistake of not filing their taxes on time. This can lead to late fees, interest charges, and even penalties.
Make sure to file your taxes on time to avoid these costly mistakes.
10. Hiring The Wrong Bookkeeper
One final mistake that small businesses make is hiring the wrong bookkeeper. This can lead to errors in your financial statements and a lack of organization.
Make sure to carefully screen candidates when you are hiring a bookkeeper. You should also consider using accounting software to help you keep track of your finances.
Why Choose Online Bookkeeping?
There are many reasons to choose online bookkeeping for your business. Here are just a few of the benefits:
1. It’s Convenient
Online bookkeeping is convenient because you can access your records from anywhere with an internet connection. This means that you can work from home, on the go, or even while on vacation.
2. Affordable
Online bookkeeping is also affordable. You can save money by not having to hire a full-time bookkeeper. And you can find accounting software that fits your budget.
3. Easy To Use
Another advantage of online bookkeeping is that it’s easy to use. There is no need to hire a professional to set up your system. And you can find software that is user-friendly and easy to navigate.
4. Secure
When you store your records online, you can rest assured knowing that they are safe and secure. Your data will be backed up and protected from hackers.
5. Collect Payments Faster
Online bookkeeping can help you collect payments faster. You can set up automatic payments and invoicing. This will save you time and help you get paid sooner.
6. Capture And Organize Receipts
Another benefit of online bookkeeping is that you can capture and organize receipts. This will save you time and help you keep track of your expenses.
7. Manage Tax Deductions
Lastly, online bookkeeping can help you manage tax deductions. You can easily track your business expenses and take advantage of tax breaks.
By choosing online bookkeeping, you can save time, money, and hassle. Make sure to shop around to find the best accounting software for your business needs.
Why Is Fincent The Best Online Bookkeeping Software?
1. Dedicated Bookkeepers
Fincent has a team of dedicated bookkeepers who are well-versed in bookkeeping and accounting principles. They work closely with clients to ensure that the financial data is accurately captured and reported.
2. Unmatched Accuracy
The accuracy of financial data is crucial for businesses, and Fincent has a track record of providing accurate reports. This is thanks to the team of dedicated bookkeepers, as well as the use of advanced software that ensures data accuracy.
3. Fast Response Time
Fincent responds quickly to client queries and requests for changes or amendments to financial data. This fast turnaround time helps businesses make quick decisions based on accurate financial data.
4. Well-structured Financial Reports
Well-structured financial reports are essential for businesses, as they help track performance and make sound business decisions. Fincent's financial reports are easy to understand, which makes them a valuable tool for business owners.
5. Easy to Understand Tax Reports
The tax reports generated by Fincent are also easy to understand, thanks to the well-structured formatting and clear explanations provided alongside the reports. This makes it easier for business owners to file their taxes and comply with tax regulations.
The Bottomline!
So, what does this all mean for small businesses in 2022? Bookkeeping is more important than ever and it’s crucial to find a platform that makes the process as easy as possible. Look no further than Fincent. We provide cloud-based bookkeeping and accounting services that are perfect for small businesses. With our easy-to-use platform, you can manage your finances with ease.
Contact us today to learn more about our (link: https://fincent.com/online-bookkeeping-service text: online bookkeeping services) and how we can help streamline your finances.
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