Many small-business owners consider bookkeeping one of the worst tasks of running a company. Bookkeeping can be tedious and time-consuming, and the business benefits aren’t as obvious as those from sales or marketing. However, when organized properly, bookkeeping can be done in a relatively modest amount of time and can help improve your business’s profitability.
Bookkeeping is the process of recording and classifying day-to-day business transactions that impact the value of assets and liabilities, generate revenues, generate expenses or change the value of the owner’s equity. It represents the organized summary of the underlying transactions of your business during a period of time. The raw data used to “keep the books” comes from receipts, invoices, checks and other primary sources. It's a precursor to preparing financial statements and paying taxes. If accounting is the language of business, then bookkeeping entries are the sentences.
The following steps may help ensure that your company’s bookkeeping doesn’t become an overwhelming burden:
Maintain a relevant chart of accounts.
Many small businesses use a generic chart of accounts for their bookkeeping. If the accounts don’t reflect the reality of your business, bookkeeping may become burdensome as you try to fit transactions into an incompatible account structure. Then every month you need to remember what you did in previous months to maintain consistency. For example, if your business spends significantly on server hosting, this may need its own account and not a generic “professional services expense.”
Organize your revenues and expenses.
As a business grows, it usually increases the number of credit accounts, credit cards and checking accounts that it uses. This often complicates bookkeeping. Streamline your credit and checking accounts and try to maintain the same patterns from month to month, which can help ease accounting. For example, you might use the same credit cards to cover monthly expenses and pay vendors consistently.
Process transactions regularly.
No more than a week should pass before you update your books. The sheer volume of transactions accumulated over a month may make bookkeeping a daunting task. Even a tiny company can generate 100 bookkeeping entries per week.
Owners involved in bookkeeping often have a firmer grasp on the condition of their business. Investing some time in bookkeeping permits you to:
Flag odd transactions that may be fraudulent.
Identify outlier expenses that need to be pared back.
Speak knowledgeably about your business's finances.
Read more articles on managing money.
This article was originally published on February 18, 2015.