Keeping on top of your finances is crucial to running a successful small business. An efficient bookkeeping system helps you manage income and expenses without creating extra stress or confusion. In this guide, we'll take you step by step through the process of setting up your own bookkeeping system for your business.
Choose a Bookkeeping System
The first step in setting up a bookkeeping system is to decide which type of system works best for your small business. There are two main options: manual or digital. With a manual system, you'll be responsible for tracking income and expenses with paper, pen, or spreadsheet. Alternatively, you can use an online software solution such as QuickBooks or Xero to manage your finances digitally. Both systems have advantages and disadvantages, so choose the one that best fits your needs.
A manual system is often the easiest for those without any prior experience in bookkeeping. Paper and pen are relatively inexpensive, and the process of tracking income and expenses is comparatively straightforward. Additionally, this may feel more realistic if you're tech-averse. On the other hand, a digital system offers many more features, making it easier to keep records up to date and generate reports you can analyze. However, digital systems tend to be more costly upfront than manual ones.
Whichever type of system you choose, make sure to work with a professional who can help you set it up if needed. This will ensure your books are accurate and maximize efficiency over time.
Set Up an Account Chart of Accounts
An account chart of accounts—or COA—is an essential tool for managing your small business finances. It's essentially a listing of all the accounts in which you keep business records, like a bank account or credit card. A standard COA has separate categories for income, expenses, liabilities, and equity, making it easier to track income and expenses over time. You can also create detailed sub-accounts that correspond with each type of revenue or expense to categorize your financial data further.
Creating your COA takes some research and planning, but setting it up correctly from the beginning will make bookkeeping much easier. First, you'll need to decide how many accounts you want to track, which is determined by the kind of business you have and what type of financial information you need to keep track of. Next, break down those accounts into subcategories based on the type of revenue, expense, or asset each account is associated with. Once you've identified all the categories for your chart of accounts and set up a system for assigning numbers to each line item in the COA, inputting and organizing your financial information should be pretty straightforward.
With an effective account chart of accounts in place, managing your small business finances will be much more efficient.
Identify Your Sources of Income and List Payments Made to Vendors and Employees
To build a comprehensive bookkeeping system, you need to identify all sources of income, including sales revenue and regular payments such as rent. You should also list payments made to vendors and employees. This is invaluable for providing accurate financial records and assists in maintaining compliance with applicable laws related to taxes, insurance, and labor law. Additionally, tracking payments from credit card companies or other third-party services is crucial to keep an accurate record of transactions that would otherwise be hard to follow.
Establishing a solid bookkeeping system can be challenging for small businesses. However, it's the key to understanding how your business performs financially and where you spend your money. Keeping track of income, expenses, and taxes should be performed for all small businesses to remain on top of their finances. Investing time and energy into understanding financial concepts and creating a sound bookkeeping system will help ensure you have an accurate picture of your business's status at all times.
Set Up a Record Keeping System to Track Transactions (Invoices, Bills, etc.)
Record keeping is a key component to ensuring proper bookkeeping of your business finances. To ensure accuracy, it's essential to set up a tracking system for all invoices and bills issued and received. This should include assigning each invoice or bill with unique identifiers that can be used to differentiate between them, logs of payments received, and any other details relevant to the transaction, like discounts or return policies. With a tracking system, you will always have current and accurate records that help you make more informed decisions about your finances.
When setting up your record-keeping system, it's essential to use a consistent, organized filing system. This could be done by assigning transactions and bills to specific categories, color-coded labels, or digital tags. An effective tracking system lets you easily track income and expenses across multiple accounts and quickly reference any transaction when needed. And with a well-organized filing system, you will be better equipped to follow up on late invoice payments or address associated errors.
Bookkeeping for small businesses can be made much easier with a good system that helps you accurately keep track of all financial transactions related to your business.
Determine the Timing of Bill Payments and Due Dates
Setting a schedule and reminders for when bills are due is a great way to ensure that bills are paid on time, which will help you maintain good financial relationships with your vendors. Determine when you will make payments for each bill so you don't miss any of them. Additionally, set up payment reminder emails or notifications to yourself or others with access to the system. This will help ensure all payments are made on time and reduce the risk of additional late fees and other costs.
Determining the due dates of each bill you will receive is also important. This will help ensure that you do not miss any payments to maintain a good credit score for your business. Scan through all incoming bills and note their due dates in an organized system such as a spreadsheet or online bookkeeping software. This will not only help maintain accurate records, but it can also help create a budget by tracking how much money needs to be available each month to cover the various expenses of your small business.
The Alternative to creating a Bookkeeping System
As you have read throughout the article, bookkeeping is one of the most critical tasks for any small business. But just as it is vital, it is also quite time-consuming. If you find yourself without the necessary time to complete bookkeeping tasks, you can hire one of our virtual assistants.
Virtual assistants are experts in their field whose primary goal is to help your company succeed by taking time-consuming tasks off your hands. They can perform functions like graphic design, marketing, and, most importantly, bookkeeping. If you want to know more about our services and our virtual assistants, give us a call! We will be able to match you with a suitable VA at a lesser cost than hiring an actual accountant or bookkeeper. You will also save on equipment, as VAs work remotely, on training, as we train our VAs before matching them with clients, and employee benefits, as we will take care of those for you.
Try a virtual assistant today!