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Bookkeeping Basics for Entrepreneurs

Author: 1st Choice Savings and Credit Union | Published: February 2, 2023

Bookkeeping is the daily practice of recording transactions within a business. While this may not be the most exciting part of running your small business, having proper bookkeeping habits will keep you organized and make you more successful in the long run.

We outline the benefits of bookkeeping and provide some practical advice on where to begin in this blog. Many small business owners (especially those who are just starting out) tend to manage all aspects of operating their business, including the responsibility of bookkeeping. Taking a DIY bookkeeping can work for your business with the right information and tools to make managing your books as easy as possible.

Table of contents

  1. What responsibilities come with bookkeeping, and why are they important?

  2. Tax benefits of good bookkeeping

  3. Advice on how to be your own bookkeeper

What responsibilities come with bookkeeping, and why are they important?

Bookkeepers monitor and organize all the basic financials for a business. There are a few fundamental duties that are required:

Recording all financial transactions

Receipts, invoices, cheques, and bank statements are all kept, recorded, and filed away. Financials are typically organized on a monthly, quarterly, and annual basis to monitor the money coming in and going out of the business. Staying on top of this requires daily effort or can be accomplished by setting aside a few blocks of designated hours several times a week. It is also important to stick to a set process for recording your financials. DIY bookkeepers can start off by recording transactions in a spreadsheet, or by using bookkeeping software.

Balancing the books

It is important to review the cash flow in and out of the business to ensure that your books are balanced. You should have separate accounts that help you track revenues, expenses, accounts receivable, and accounts payable, among other items on your balance sheet.

Bank reconciliation

Bank reconciliation is when you review your bank statements and compare them with your books to make sure everything aligns. It’s a way of cross-referencing to ensure accuracy.

Completing these fundamental tasks organizes crucial information. This data can be used by the owner to carry out other important bookkeeping duties that are directly connected to the operation of the business. These higher-level bookkeeping tasks include:

  • Monthly financial reports showing your business’s growth.

  • Accounts receivable and accounts payable, which are used for sending invoices to customers and paying invoices that were sent to you.

  • Payroll calculations and deductions.

Outlining the purpose and duties of good bookkeeping illustrates how this practice is so crucial to running a business. Recording transactions and balancing the books ensures that you are aware of your business’s financial position and can help prepare you for tax time. Financial reports emphasize what your biggest source of income is, and what budget cuts, increases, or adjustments to your operations may be needed. These reports are also used by lenders to determine the financial health of your business and if you are eligible for a loan or line of credit.

Tax Benefits of Good Bookkeeping

Another major benefit of maintaining your books throughout the year comes during tax season. If you’ve kept your books up to date, preparing year-end statements should be relatively straight-forward. Tax time is a stressful period for many business owners, and good bookkeeping practices can take the pressure off as you close out the year.

Depending on your business and year-end process, you may want to have an accountant prepare and audit your financials. For small business owners, audited financials are not typically required, however, hiring a professional can give you peace of mind that you are managing your books correctly and can ensure that your finances are organized properly in accordance with tax regulations. An accountant can also analyze and summarize your financial data to give you additional insight on your business and can help prepare your business tax return. Your accountant can provide advice on tax deductions that can be claimed and the tax incentives that are applicable to your specific operations. Hiring an accountant is an additional investment, but it can help you in the long term as you focus on business growth.

Good bookkeeping can also benefit your business in the event of a Canadian Revenue Agency (CRA) audit. Proper bookkeeping and tax returns filed with the help of professionals will make the process simpler, in the event of an audit request where your records will be examined ensure they match your tax return. If your tax return was prepared by an accountant based on your well-maintained books, everything should be in alignment.

Advice on How to be Your Own Bookkeeper

Being your own bookkeeper is easier than ever with the many financial tools and applications that are designed to help you track cashflow and manage your books. Two of the most popular choices for small business owners are QuickBooks and Quicken. Both offer customizable plans that vary in price based on the functionality you need. Additionally, a mobile app is available for both programs, so you can manage your books anytime.

Even with great accounting tools, the financial technologies can’t do all the work. You’ll still need to record transactions, store and organize paper items such as receipts, invoices, bank statements, and other important documents. The best advice for small business owners who are also acting as their own bookkeepers is to stay organized. Here are some tips on how to do so:

Keep personal and business finances separate

This makes your bookkeeping more efficient and simpler. It establishes you as a business owner and opens the door to business-specific financial benefits.

Keep all receipts

Even if the amount spent was small, it is important to save and record all transactions.

Develop and practice a method for handling paperwork

This could include using a filing system that makes sense to you, or by uploading copies of paper records to your computer as backup and for easy access.

Set aside dedicated bookkeeping time

As a small business owner, you likely have many tasks to complete every week. If you can’t spend time on bookkeeping every single day, schedule consistent time throughout the week to stay on top of it and have a system in place to keep receipts and invoices safe for the in-between days.

Bookkeeping can feel like a tedious task for any busy small business owner. Despite this, bookkeeping can help your business experience growth and success. It is the foundation of your business’s financial operations. Having your financial data organized makes it easy to see your business’s strengths and weaknesses. This can positively affect decisions that will contribute to your long-term strategy and goals. Proper bookkeeping can alleviate stress during tax season by ensuring that regulations are being followed. Ultimately, when you take the time to understand where your money is going, you will have a better grasp on what direction your business is heading, too.

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