22 May 2024
Bookkeeping is a crucial and ongoing small business task. This article highlights:
Bookkeeping is the systematic recording and organising of all the financial transactions of your business. It involves tracking transactions such as your sales, purchases and payments.
Effective bookkeeping is a cornerstone of any healthy business, but for small businesses, it can be the difference between growth, stagnation or even failure. The main benefits of effective bookkeeping include:
Easier Financial Analysis and Management
Bookkeeping allows you to proactively and constantly monitor the financial health of your business. Through accurate records, you can track your business finances, analyse your cash flow and make data-driven decisions to help drive your success.
Regularly updating your books also allows you to identify discrepancies early on. Whether it’s a misplaced decimal or an unintended expense, catching errors quickly can save your business substantial amounts of money and prevent minor mistakes from turning into major financial issues.
Easier Tax Preparation and Compliance
An effective bookkeeping system makes tax time less stressful and helps to ensure your ongoing legal compliance.
Easier Finance Approvals
When you apply for business loans or lines of credit, lenders will scrutinise your financial records. A clear, well-organised bookkeeping system can demonstrate your financial responsibility. It provides lenders with a transparent view of your business cash flow, expenses and revenue. This can improve your chances of obtaining business finance on the best available terms.
Let’s explore a simple 4-step approach to effective bookkeeping.
Step 1: Separate Your Business and Personal Expenses
Separating your business and personal expenses helps to provide an accurate snapshot of your business finances.
The alternative of mixing your personal and business expenses makes it more likely that you will have inaccuracies in your financial reports, more difficulties in tracking your cash flow, and potential issues with the Australian Taxation Office (ATO).
It will also make your business bookkeeping tasks more complicated than they need to be.
Methods to separate your business and personal expenses effectively include:
Step 2: Choose a Bookkeeping System
Ideally, choose bookkeeping software that allows you to categorise your and store transactions easily (for example, “in the cloud” so they are accessible and retrievable whenever you need to access them). In addition, many bookkeeping platforms will connect directly with your bank accounts, automating the business and personal expense separation process.
Other key considerations when choosing your software include its ability to handle:
Step 3: Choose Your Accounting Method
There are two major options:
Each method has bookkeeping implications for how you report your income and expenses in your financial statements.
The cash-based accounting method records transactions when money changes hands. For example, when a customer or client pays you or when you pay an expense.
The accrual-based accounting method records financial transactions when revenue is earned or an expense is incurred, regardless of when payments happen. It is ideal for businesses who offer or use credit terms.
Step 4: Make Bookkeeping a Habit
Embracing the bookkeeping process as a regular part of your routine is crucial for maintaining accurate financial records. This means setting aside time each week or month to go through your receipts, invoices, and other financial documents.
These tips will help you to make bookkeeping a regular habit:
As a small business owner, it’s crucial to decide whether DIY bookkeeping or outsourcing your bookkeeping tasks to professionals best suits your needs.
DIY bookkeeping could allow you to develop a better understanding of the financial workings of your business. However, it does require time and knowledge to ensure accuracy in your bookkeeping numbers.
If you don’t have the time or expertise to do bookkeeping tasks, DIY bookkeeping can be not only time-consuming, but you run the risk of making costly bookkeeping errors. There is also the opportunity cost of how you could better be spending the time that you’re spending on your bookkeeping tasks.
On the other hand, outsourcing your business bookkeeping to professionals could provide more time for you to focus on core business activities. A professional can bring expertise, reduce errors, and offer valuable financial advice.
When considering which route to take, evaluate your business needs, available time, budget constraints, and your aptitude for financial numbers. If managing your finances becomes too complex or time-consuming, it might be wise to consider outsourcing. It’s about striking a balance between cost-effectiveness and efficiency while ensuring accurate bookkeeping for your small business.
Our experienced and professional bookkeeping team at Retinue is passionate about helping small business owners succeed. We can save you time so that you can focus on what you do best and make better decisions with accurate and up-to-date financial information.
Contact us today to find out how we can help your business.
*Retinue’s (ABN 66 658 618 449) payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.
Protection is only provided for ATO investigations notified to us during the period which you are a client and relating to any tax returns or lodgements prepared by us. Fines includes any penalties and interest that may result from any errors made by us but does not include any additional tax liability that may result from an amended lodgement.
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