Bookkeeping is just keeping an honest record of money in and money out. Many owners avoid it until tax time, when it becomes a painful weekend. Done a little every week, it takes far less time than you fear.
Start with separate accounts
Open a business bank account, and use it only for business. Mixing personal and business money is the single biggest cause of bookkeeping pain. With separate accounts, your bank statement is already half your bookkeeping.
Record every transaction
Every money movement gets recorded:
- Income: who paid, how much, when, for what.
- Expenses: who you paid, how much, when, for what.
- A category for each, such as sales, materials, software, travel or rent.
Most bookkeeping software connects to your bank and pulls transactions in automatically. Your job becomes checking and categorising them. A spreadsheet works too, while the business is small.
Keep your receipts
Keep a receipt or invoice for every expense. Take a photo or save the email as soon as you get it, in one folder. Tax rules say how long you must keep them, often several years, so check the rule where you file.
Reconcile every month
Once a month, compare your records with your bank statement. Every transaction in the bank should be in your books, and the balances should match. Differences usually mean something was missed or recorded twice. Finding them monthly is easy. Finding them at year end is not.
Cash or accrual?
- Cash basis. You record income when it arrives and expenses when you pay them. Simple, and common for small businesses.
- Accrual basis. You record income when you invoice and expenses when you are billed. Gives a truer picture of profit.
Your tax rules may decide which you can use. Ask an accountant if you are unsure.
A weekly 20 minutes
- Check new bank transactions and categorise them.
- Match receipts to expenses. Chase any missing ones.
- Send any invoices for finished work.
- Check which invoices are overdue, and send reminders.
- Note the bank balance and anything big coming up.
Steps 3 and 4 are as much about cash flow as bookkeeping. There are reminder templates for overdue invoices if you need them.
Know when to get help
A bookkeeper or accountant is worth it when the work takes you more than a few hours a month, when you hire staff, or when taxes get complicated. Even if you do the books yourself, an accountant once a year can save you more than they cost.
Use the numbers
Good books are not only for tax. They tell you your profit margin, how much you can pay yourself and where the money goes.