At the heart of running a small business is juggling multiple, sometimes competing tasks. Bookkeeping is one of those tasks that often gets pushed aside. Keeping up with the finances of a business is crucial to understanding how the business is doing. Having a clear picture of a business’s financial situation gives a small business owner the ability to make strategic decisions for the future.
Accurate bookkeeping also provides a small business owner insight on profitability, cash flow, and the expenses that do not add value to the business. A small business owner needs reliable financial records in order to gain a complete understanding of the money coming in and going out of the business. Reliable records empower a small business owner to make strategic decisions that promote the business’s long-term growth.
It’s natural for a small business owner to feel overwhelmed by the financial aspect of owning a business, but with bookkeeping systems and other resources, a business owner can feel financially secure and spend more time doing the things only he or she can do in the business.
This guide outlines the importance of bookkeeping, some financial records a business should keep, and the peace of mind that bookkeeping services provide a small business.
What Is Small Business Bookkeeping?
Small business bookkeeping is the process of documenting and categorizing the financial activities of a business. These financial activities may include payment transactions from customers, payment transactions to suppliers and employees, and purchases for the business.
The process is critical to ensuring accurate financial records that show the income and expenses of the business, what the business owns and what the business owes.
Many of the bookkeeping tasks are repetitive, and include:
- Recording business transactions
- Classifying financial transactions
- Reconciling transactions
- Maintaining records
- Preparing financial statements
- Assisting with payroll recordkeeping
Organizing financial information for tax preparation
Bookkeeping supports the business owner to understand the business transactions.
At Bee Precise Bookkeeping & Notary Services, we provide bookkeeping services tailored to the bookkeeping needs of small businesses. We assist clients to maintain orderliness of their financial records.
Why Is Bookkeeping Important for Small Businesses?
Timely and accurate bookkeeping helps business owners manage and grow their business.
Without accurate financial records, it becomes impossible to determine if revenue is increasing, if expenses are under control, or if the business is making a profit.
Know Your Business’s Profitability
Revenue is just one part of the equation in determining a business’s financial health. A business may have thriving sales but still have financial worries if expenses are too high.
Regular bookkeeping shows a business owner what revenue the business is generating and what expenses the business is incurring. By evaluating financial statements, a business owner may identify a rise in expenses and determine where the increase is occurring.
Know Your Financial Statement Changes
Knowing financial statement changes is key for a business owner to make proactive changes for their business.
All business decisions require some degree of analysis. The absence of complete and reliable information creates an obstacle to making effective decisions.
Financial information helps analyze the effects of potential decisions such as hiring, investing, pricing, expanding, or contracting the business. The more accurate the financial information, the more informed the decisions can be.
A professional bookkeeping service can help you with this information in an organized manner, allowing the business owner to spend more time on planning, and less time looking for information.
Prepare for Tax Time
The end of the year creates the need for the organization to gather all supporting records, forms, and information to be submitted to the IRS. Records that are not categorized and reconciled often means additional time is needed to review records to determine whether the information supports a business expense.
If the books are maintained throughout the year, the financial information needed for the tax return is organized and allows the business owner to identify questions that should be addressed to a tax professional. The maintenance of records does not give tax advice, but allows for the business owner to gather the information needed to fulfill their tax obligation.
How Does Bookkeeping Improve Cash Flow Management?
Effective management of cash flow is essential for the success of a small business.
Most small businesses are profitable. However, if customers do not pay on time and other bills (payroll, rent, supplier invoices, etc.) need to be paid on time, there will be issues.
Practical bookkeeping is helpful to the small business owner to understand when money comes in and when money leaves the business.
Predicting cash flow shortages is possible when invoices are evaluated along with bills and periodic expenses.
Example: Suppose the owner of a small business has to make a large payment to a key supplier at the same time payment is due from a key customer. He or she can review the accounts receivable (A/R) to see which customer invoices are due and which have available funds to make the supplier payment.
Using systems to generate financial statements in a timely manner will help identify costs that are repeated and may require more analysis.
In small businesses, bookkeeping helps illustrate the cash inflows and outflows, even though it generally does not control the cash flow. But if a business owner or a manager has a good understanding of the cash flows, it helps them in making better financial decisions for the business.
What Is Bookkeeping Cleanup, and When Do You Need It?
Some businesses fall behind on their financial records. This can happen during busy periods, after a period of rapid business growth, after switching bookkeeping software, or when the business owner is also doing all the bookkeeping tasks.
Problems can build up to the point where financial information becomes unreliable due to a number of issues such as unrecorded transactions, duplicate entries, missing documents and reconciliations.
Bookkeeping cleanup means going over the records already kept, identifying the errors or missing information, and making the corrections. This can be done for recent or old records.
You may need a bookkeeping cleanup if:
- Your financial records are several months old.
- Your business bank accounts don’t balance with your records.
- You have transactions that are recorded as duplicates or are uncategorized.
- You don’t know your business profit.
- Financial reports cannot be prepared.
- You experience challenges or confusion during tax season.
Having your records organized gives your business a fresh start and can ease some of the challenges and frustrations of business owners. Ongoing bookkeeping can help maintain the improvement.
Bee Precise Bookkeeping & Notary Services provides bookkeeping cleanup to help businesses with unorganized financial records, and helps them with a more organized financial system.
Why Ongoing Bookkeeping Services Matter
Cleaning up your books is just the beginning. Maintaining them on an ongoing basis is just as important.
Continuous bookkeeping services involves recording business transactions, reconciling accounts, evaluating financial data, and creating reports at scheduled intervals.
Continuous bookkeeping provides a myriad of benefits to business owners, including the ability to:
- Ensure financial records are up to date
- Spot inconsistencies more quickly
- Monitor business income and operating expenses
- Evaluate the performance of the business more regularly
- Track accounts receivable more closely
- Lessen the need for last-minute bookkeeping before tax-related deadlines
Comparing the finances for different months makes it easier to identify inconsistencies in the business operations.
Reviewing business activities for the year gives business owners an opportunity to make changes to their operations based on trends identified and/or business conditions that may warrant changes.
Bee Precise provides a number of bookkeeping services on a continuous basis that include financial statement preparation, reconciliations, payroll support, and other QuickBooks related services.
How QuickBooks Can Support Your Bookkeeping
Well-designed accounting software can make bookkeeping easier by providing ways to automate and simplify processes.
Many small businesses use QuickBooks to record, categorize and reconcile transactions and produce financial reports. QuickBooks can help small businesses centralize business information, which is often tracked on different systems, or on paper, bank and other statements, and spreadsheets.
Well-kept books still require review of transactions to verify that they are recorded and classified correctly.
It is important for the business owner not to commingle personal and business transactions and to retain supporting documentation. It is also important that the business owner reviews the accounts on a regular basis.
QuickBooks bookkeeping help allows the small business owner to review and classify transactions and be actively involved in the business. QuickBooks can also help the business owner gain a better understanding of business reports.
Relying on specific accounting software is not as important as relying on software that shows an accurate and dependable representation of the business’s financial position.
How Financial Reporting Helps Business Owners Plan Ahead
Financial reports help bookkeepers glean information useful for making decisions for a business.
There are three particularly helpful reports for a small business owner.
A profit and loss statement (P&L) helps an owner understand whether the business has made a profit or loss for the reporting period by summarizing the revenue and expenses for that period.
A balance sheet provides a snapshot in time of what a business owns (assets), what a business owes (liabilities) and what the owner has invested in the business (equity).
A cash flow statement summarizes the cash the business has received and/or spent for the reporting period by breaking it down into the three types of activities: operating, investing and financing.
If a small business owner is diligent and analyzes these statements on a regular basis, then trends in profitability and expenses, and financial obligations can be identified.
Additionally, if a small business owner is able to secure funding to support their business, then analyzing these statements can help them be strategic in understanding their numbers, and evaluate costs, and in turn help them make better decisions about the performance of their business.
Bee Precise Bookkeeping & Notary Services helps small business owners in this capacity.
When Should You Hire a Professional Bookkeeper?
At first, many people do their own bookkeeping. This can work when the number of transactions is low and bookkeeping records are simple.
However, as a business grows, bookkeeping becomes time consuming. It can take up evenings to organize receipts, fix entries, and reconcile accounts. Some bookkeeping services can help if the bookkeeping is:
- Costing you time with customers.
- Getting more complicated.
- Requiring you to create monthly financial reports.
- Falling behind.
- Creating a need for you to assess profitability and expenses.
- Needing support for keeping QuickBooks entries.
Using a professional bookkeeper can take some of the burden off a business owner.
It’s important to look at how many transactions your business does, what the condition of the existing records are, how big your business is, and figure out how much support you need. Then you can decide what arrangement is best for you.
Conclusion
Bookkeeping is an important skill for efficient business management. Keeping records helps a business manager understand their business profitability and cash flow. It helps them plan for tax and other cash outflows, and also plan for the future of the business. The records allow the manager make timely decisions for the business.
Continuity is very important for an effective record keeping system. If records are kept consistently and in a timely manner, the management is able to easily identify and resolve errors in record keeping, which if not resolved, can disrupt business processes.
If your books are behind, bookkeeping cleanup can help restore timeliness. Ongoing bookkeeping can restore consistency and help ensure that business operations are not negatively affected.
Bee Precise Bookkeeping & Notary Services provides bookkeeping cleanup and ongoing bookkeeping services for small business owners, and other financial management services to meet their bookkeeping needs.
Ready to gain more clarity into your business finances?
Instead of spending valuable time trying to manage every financial detail yourself, consider getting professional support. Contact Bee Precise Bookkeeping & Notary Services at 612-234-2048 or visit bprecisebookkeeping.com to request a consultation and discuss your bookkeeping needs.
Frequently Asked Questions
1. What is small business bookkeeping?
Small business bookkeeping is the process of recording, categorizing, and organizing business financial transactions. It helps owners track income and expenses, maintain accurate records, and understand their financial performance.
2. How often should a small business update its books?
Transactions should be recorded regularly, with bank and credit card accounts generally reconciled monthly. Businesses with higher transaction volumes may benefit from more frequent reviews.
3. What are the benefits of professional bookkeeping services?
Professional bookkeeping services can help maintain accurate records, organize expenses, reconcile accounts, prepare financial reports, and reduce the time business owners spend managing administrative tasks.
4. What is bookkeeping cleanup?
Bookkeeping cleanup involves reviewing and correcting disorganized, incomplete, or outdated financial records. It may include resolving duplicate transactions, correcting categories, and reconciling bank accounts.
5. Can QuickBooks help manage small business finances?
Yes. QuickBooks can help businesses record transactions, categorize income and expenses, reconcile accounts, and generate financial reports. Regular review is still necessary to maintain accurate records.
6. Why is cash flow management important?
Cash flow management helps businesses understand when money is expected to come in and when expenses must be paid. This information supports better payment planning and helps identify potential cash shortages.