Thursday, Dec 19, 2024 00:00 [IST]
Last Update: Thursday, Dec 19, 2024 11:13 [IST]
Whether you run a small or a large business, staying in control of your finances should always be a priority. As a business owner, you need to ensure that you have enough cash flow to not only keep your business afloat but to reinvest in your company as time goes on.
Keeping your finances in order year-round also helps to ensure accurate reporting and streamline tax preparation. Bookkeeping will provide valuable insights into your company's performance now and in the future. If numbers aren’t your forte, continue reading as we define the basic terms and processes so that your own bookkeeping processes can become comfortably streamlined.
As a minimum, keeping an entry of your inward and outward transactions is necessary. You can do this in two main ways:
Single-Entry is when you record each transaction only once, as either income or an expense. While this method is suitable for small entities with simple activities, it may lack the versatility needed for in-depth analysis and can lead to inaccurate data.
Double-Entry means entering each transfer in two ledger accounts, referred to as debits and credits. This is a more secure method as it balances your books by assuming each transaction affects both your cash and sales account.
If you’re looking to maintain detailed records of your company books, you can do so by storing your balance sheets as either .xcl files or even .pdfs for universal accessibility. And if you need to make archived balance sheets editable again at any future point, you can easily convert the PDF file to Excel again by using a PDF editor like Adobe Acrobat.
The time-honoured cliche "Knowledge is Power" holds true in commerce. Maintaining precise records allows business owners to track income and assess profitability. With an accurate cash flow picture, you can ensure you have enough funds to cover monthly expenses and prepare for emergencies.
On the other hand, if you neglect your books throughout the year when it comes to tax time, you might get overwhelmed or simply not be able to put your reports together in time. This opens the door to repercussions, like tax penalties, missed obligations or overspending and not having enough money to pay your corporate taxes.
A lack of financial clarity may also impact your relationships and partnerships with investors and long-term customers. An up-to-date ledger safeguards records and enhances credibility with various stakeholders.
Begin by familiarising yourself with accounting terminology and tax jargon, so that you can better understand software functionality and communicate with advisors or lenders. Like with many fields, unknown words can seem intimidating, but they’re often simple. We’ll explain a few below:
Assets are resources you own with economic value, such as a truck, building or computer equipment.
Liabilities are the debts and obligations the company owes to other entities. These include utility bills and accounts payable for services rendered or goods purchased, such as miscellaneous supplies.
Equity is the percentage of your ownership interest in the company, simplified by calculating assets minus liabilities.
Revenue is the income you generate from normal operations, products sold or services rendered.
Expenses are the costs you incur during revenue generation, such as building leases, fuel, vehicle maintenance and employee salaries.
Net profit is the amount remaining after subtracting all expenses from revenue.
Begin by choosing which method you'd like to use: manual or digital. Each has several pros and cons.
Manual techniques involve using physical journals, ledgers and spreadsheets, which can lead to significant cost savings—an appealing benefit for solopreneurs. However, it is time-consuming and prone to errors if you're not meticulous. Scaling the system up as the business grows may also be unmanageable.
Using a digital approach, you'll choose proprietary software that is either loaded on your system or accessible via a cloud service. There are many advantages, with ease of use and automation leading the way. Online systems also make collaboration with financial professionals and report generation easy.
Additionally, going digital lets you simplify other workflows using cloud solutions like Adobe Acrobat and Sign to handle invoices, contracts, and other documents that require electronic signatures from third-party stakeholders.
You'll need to evaluate a few options to get started on effective bookkeeping. First, a robust application. Familiar brands include QuickBooks, Xero, and FreshBooks, which offer features for invoicing, expense tracking and report generation.
Suppose you do frequent retail or wholesale purchasing. In that case, you'll need a robust way to capture those physical slips. Tracking apps like Expensify and Receipt Bank will monitor your purchases and automatically record them to do a large chunk of your bookkeeping in real-time.
Solopreneurs need a coherent filing system for both physical and digital archives. A simple method is to categorise by type (e.g., invoices, receipts, bank statements) or month. Be consistent, label everything and store it in a designated, secure location safe from environmental damage, or on a chosen digital platform.
Whenever possible, go paperless. Use a smartphone to scan physical receipts and store them online. If you store files on a laptop, run daily backups to avoid data loss.
If you get in the habit of making financial record-keeping a weekly process, you’ll stay on top of it throughout the year, prevent it from becoming an insurmountable task and avoid accumulated errors due to forgetfulness or misplaced papers.
We know when you’re running a task, there are already countless tasks to stay on top of. However, many businesses end up in a bottleneck position come tax time, when they have to look back through the year to balance their books. Make use of the helpful software available today and get consistent in using it and lodging your transactions. If it becomes a weekly habit to update your books, you’ll stay well ahead of your business bookkeeping and move forward smoothly.
